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Do professional forecasters believe in the Phillips curve? evidence from the G7 countries

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  • Ralf Fendel
  • Eliza M. Lis
  • Jan‐Christoph Rülke

Abstract

This paper uses monthly survey data for the G7 countries for the time period 1989–2007 to explore the link between expectations on nominal wages, prices and unemployment rates as suggested by the wage and price Phillips curves. Four major findings stand out. First, we find that survey participants trust in both types of Phillips curve relationships. Second, we find evidence in favor of nonlinearities in the price Phillips curve. Third, we take into account a kink in the price Phillips curve to indicate that the slope of the Phillips curve differs during the business cycle. We find strong evidence of this feature in the data which confirms recent theoretical discussions. Fourth, we employ our data to the expectations-augmented Phillips curve model. The results suggest that professional forecasters adopt this model when forecasting macroeconomic variables. Copyright (C) 2010 John Wiley & Sons, Ltd.

Suggested Citation

  • Ralf Fendel & Eliza M. Lis & Jan‐Christoph Rülke, 2011. "Do professional forecasters believe in the Phillips curve? evidence from the G7 countries," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 30(2), pages 268-287, March.
  • Handle: RePEc:jof:jforec:v:30:y:2011:i:2:p:268-287
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    File URL: http://hdl.handle.net/10.1002/for.1172
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    References listed on IDEAS

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    2. Víctor Guerrero & Fabio Nieto, 1999. "Temporal and contemporaneous disaggregation of multiple economic time series," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 8(2), pages 459-489, December.
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    5. Litterman, Robert B, 1983. "A Random Walk, Markov Model for the Distribution of Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(2), pages 169-173, April.
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    7. F. Javier Fernandez Macho & Andrew C. Harvey & James H. Stock, 1987. "Forecasting and Interpolation Using Vector Autoregressions with Common Trends," Annals of Economics and Statistics, GENES, issue 6-7, pages 279-287.
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    Citations

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    Cited by:

    1. Rülke, Jan-Christoph, 2012. "Do professional forecasters in Asian–Pacific countries believe in the monetary neutrality?," Economics Letters, Elsevier, vol. 117(1), pages 178-181.
    2. Ralf Fendel & Jan-Christoph Ruelke, 2014. "Expectations and the quantity equation - evidence from Eastern European countries," Applied Economics, Taylor & Francis Journals, vol. 46(3), pages 329-335, January.
    3. Paul Hubert & Becky Maule, 2016. "Policy and Macro Signals as Inputs to Inflation Expectation Formation," Documents de Travail de l'OFCE 2016-02, Observatoire Francais des Conjonctures Economiques (OFCE).
    4. repec:kap:empiri:v:44:y:2017:i:2:d:10.1007_s10663-016-9322-x is not listed on IDEAS
    5. Rülke, Jan-Christoph, 2012. "Do professional forecasters apply the Phillips curve and Okun's law? Evidence from six Asian-Pacific countries," Japan and the World Economy, Elsevier, vol. 24(4), pages 317-324.
    6. Jalles, João Tovar, 2017. "On the rationality and efficiency of inflation forecasts: Evidence from advanced and emerging market economies," Research in International Business and Finance, Elsevier, vol. 40(C), pages 175-189.
    7. Maritta Paloviita & Matti Viren, 2014. "Inflation and output growth uncertainty in individual survey expectations," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, pages 69-81.
    8. Dovern, Jonas, 2015. "A multivariate analysis of forecast disagreement: Confronting models of disagreement with survey data," European Economic Review, Elsevier, vol. 80(C), pages 16-35.
    9. Víctor López-Pérez, 2017. "Do professional forecasters behave as if they believed in the New Keynesian Phillips Curve for the euro area?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 44(1), pages 147-174, February.
    10. Ball, Laurence & Jalles, João Tovar & Loungani, Prakash, 2015. "Do forecasters believe in Okun’s Law? An assessment of unemployment and output forecasts," International Journal of Forecasting, Elsevier, vol. 31(1), pages 176-184.

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