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Identifying the Phillips curve through shifts in volatility

Listed author(s):
  • Kajuth, Florian

This paper applies the method of identification through heteroskedasticity (Rigobon and Sack, 2003) to address the simultaneity problem in Phillips curve estimations as an alternative to GMM estimations or exclusion restrictions. This approach makes use of shifts in the relative volatility of shocks to unemployment and inflation to trace out the Phillips curve. Moreover it provides testable restrictions, which is preferable to existing alternatives. Our results suggest a statistically and economically significant contemporaneous trade-off between inflation and the unemployment gap for the US and the euro area, with the trade-off for the euro area being larger.

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File URL: http://www.sciencedirect.com/science/article/pii/S0164070412000882
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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 34 (2012)
Issue (Month): 4 ()
Pages: 975-991

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Handle: RePEc:eee:jmacro:v:34:y:2012:i:4:p:975-991
DOI: 10.1016/j.jmacro.2012.08.006
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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