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The Time-Varying Phillips Correlation

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  • LUCA BENATI

Abstract

We use complex demodulation techniques to investigate changes in the correlation between real activity and inflation at the business-cycle frequencies in the United States, the United Kingdom, the Eurozone, and 10 other Organization for Economic Cooperation and Development (OECD) countries over the post-WWII era. Consistent with the analysis of Ball, Mankiw, and Romer (1988) we document a positive correlation between the time-varying average gain of real activity onto inflation at the business-cycle frequencies and inflation's Hodrick-Prescott trend, which is compatible with New Keynesian theories emphasizing the link between trend inflation, the frequency of price adjustments, and the slope of the Phillips trade-off. Copyright 2007 The Ohio State University.

Suggested Citation

  • Luca Benati, 2007. "The Time-Varying Phillips Correlation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1275-1283, August.
    • Handle: RePEc:mcb:jmoncb:v:39:y:2007:i:5:p:1275-1283
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    References listed on IDEAS

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    1. Laurence Ball & N. Gregory Mankiw & David Romer, 1988. "The New Keynsesian Economics and the Output-Inflation Trade-off," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 1-82.
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