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Is the Irish Phillips Curve broken?

Author

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  • Violaine Faubert

    (Banque de France)

Abstract

Contrary to the predictions of a traditional Phillips curve relationship, inflation in Ireland remained subdued in the decade following the 2008 financial crisis, despite improving labour market conditions. To examine this apparent puzzle, we test econometrically the relevance of the Phillips curve in Ireland. We find a significant role for domestic cyclical conditions. We investigate whether the Phillips curve may be non-linear and find some evidence that it is flatter when there are high excess capacities and turns steeper as economic slack is eliminated. However, forecasts from non-linear specifications do not systematically outperform forecasts from linear specifications.

Suggested Citation

  • Violaine Faubert, 2021. "Is the Irish Phillips Curve broken?," The Economic and Social Review, Economic and Social Studies, vol. 52(4), pages 397-437.
    • Handle: RePEc:eso:journl:v:52:y:2021:i:4:p:397-437
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    File URL: https://www.esr.ie/article/view/1376/654
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    Cited by:

    1. Boyd, Laura & Keenan, Enda & McIndoe-Calder, Tara, 2023. "Earnings growth under high inflation," Quarterly Bulletin Articles, Central Bank of Ireland, pages 89-123, September.

    More about this item

    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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