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The long-run Phillips curve and non-stationary inflation

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  • Russell, Bill
  • Banerjee, Anindya

Abstract

Modern theories of inflation incorporate a vertical long-run Phillips curve and are usually estimated using techniques that ignore the non-stationary behaviour of inflation. Consequently, the estimates obtained are imprecise and unable to test the veracity of a vertical long-run Phillips curve. We estimate a Phillips curve model taking into account the non-stationary properties in inflation and identify a small but significant positive relationship between inflation and unemployment. The results also provide some evidence that the trade-off between inflation and the rate of unemployment in the short-run worsens as the mean rate of inflation increases.

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  • Russell, Bill & Banerjee, Anindya, 2008. "The long-run Phillips curve and non-stationary inflation," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1792-1815, December.
  • Handle: RePEc:eee:jmacro:v:30:y:2008:i:4:p:1792-1815
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    Cited by:

    1. Russell, Bill, 2011. "Non-stationary inflation and panel estimates of United States short and long-run Phillips curves," Journal of Macroeconomics, Elsevier, vol. 33(3), pages 406-419, September.
    2. Juan De Dios Tena & Jorge Dresdner & Iván Araya, 2012. "A Multimarket Approach For Estimating A New Keynesian Phillips Curve," Revista de Economia Aplicada, Universidad de Zaragoza, Departamento de Estructura Economica y Economia Publica, vol. 20(1), pages 49-68, Spring.
    3. Tiwari, Aviral Kumar & Oros, Cornel & Albulescu, Claudiu Tiberiu, 2014. "Revisiting the inflation–output gap relationship for France using a wavelet transform approach," Economic Modelling, Elsevier, vol. 37(C), pages 464-475.
    4. Donadelli, Michael & Paradiso, Antonio, 2014. "Is there heterogeneity in financial integration dynamics? Evidence from country and industry emerging market equity indexes," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 184-218.
    5. Girardi, Riccardo & Paruolo, Paolo, 2013. "Wages and prices in Europe before and after the onset of the Monetary Union," Economic Modelling, Elsevier, vol. 35(C), pages 643-653.
    6. Jang, Tae-Seok & Sacht, Stephen, 2012. "Identification of animal spirits in a bounded rationality model: An application to the euro area," Kiel Working Papers 1798, Kiel Institute for the World Economy (IfW).
    7. Ahrens, Steffen & Snower, Dennis J., 2014. "Envy, guilt, and the Phillips curve," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 69-84.
    8. repec:ris:badest:0548 is not listed on IDEAS
    9. Mihaela Simionescu, 2014. "Testing The Existence And Stability Of Phillips Curve In Romania," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 10(1), pages 67-74.
    10. Bill Russell & Anindya Banerjee & Issam Malki & Natalia Ponomareva, 2010. "A Multiple Break Panel Approach To Estimating United States Phillips Curves," Dundee Discussion Papers in Economics 232, Economic Studies, University of Dundee.
    11. Agnieszka Leszczynska & Katarzyna Hertel, 2013. "Inflation persistence – a disaggregated approach," EcoMod2013 5692, EcoMod.
    12. Seip, Knut L. & McNown, Robert, 2013. "Monetary policy and stability during six periods in US economic history: 1959–2008: a novel, nonlinear monetary policy rule," Journal of Policy Modeling, Elsevier, vol. 35(2), pages 307-325.
    13. Tae-Seok Jang & Stephen Sacht, 2016. "Animal Spirits and the Business Cycle: Empirical Evidence from Moment Matching," Metroeconomica, Wiley Blackwell, vol. 67(1), pages 76-113, February.
    14. Shahbaz, Muhammad & Islam , Faridul & Shabbir, Muhammad Shahbaz, 2012. "Phillips Curve in a Small Open Economy: A Time Series Exploration of North Cyprus," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 35(4), pages 113-130, December.
    15. Rao, B. Bhaskara & Paradiso, Antonio & Esposito, Piero, 2011. "Non-stationary inflation and panel estimates of the n ew Keynesian Phillips curve for Australia," MPRA Paper 29242, University Library of Munich, Germany.
    16. Arize, Augustine C. & Malindretos, John, 2012. "Nonstationarity and nonlinearity in inflation rate: Some further evidence," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 224-234.

    More about this item

    Keywords

    Inflation Unemployment Long-run Phillips curve Business cycle GMM;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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