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Asymmetry in the U.S. Output-Inflation Nexus

Author

Listed:
  • Peter Clark

    (International Monetary Fund)

  • Douglas Laxton

    (International Monetary Fund)

  • David Rose

    (International Monetary Fund)

Abstract

This paper presents empirical evidence supporting the proposition that there is a significant asymmetry in the U.S. output-inflation process. The important policy implication of this asymmetry is that it can be very costly if the economy overheats because this will necessitate a severe tightening in monetary conditions in order to re-establish inflation control. The empirical results presented in the paper show that the conclusions regarding asymmetry are robust to a number of tests for sensitivity to changes in the method used to estimate potential output and in the specification of the Phillips curve.

Suggested Citation

  • Peter Clark & Douglas Laxton & David Rose, 1996. "Asymmetry in the U.S. Output-Inflation Nexus," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 216-251, March.
  • Handle: RePEc:pal:imfstp:v:43:y:1996:i:1:p:216-251
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    Citations

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    Cited by:

    1. Isard, Peter & Laxton, Douglas & Eliasson, Ann-Charlotte, 2001. "Inflation targeting with NAIRU uncertainty and endogenous policy credibility," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 115-148, January.
    2. Robert Amano & Don Coletti & Tiff Macklem, 1998. "Monetary rules when economic behaviour changes," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    3. Christina D. Romer & David Romer, 1999. "Monetary policy and the well-being of the poor," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 21-49.
    4. Schaling, Eric, 2004. "The Nonlinear Phillips Curve and Inflation Forecast Targeting: Symmetric versus Asymmetric Monetary Policy Rules," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 361-386, June.
    5. Anthony Yates, 1998. "Downward nominal rigidity and monetary policy," Bank of England working papers 82, Bank of England.
    6. Roa Maria J & Vazquez Francisco Jose & Saura Dulce, 2008. "Unemployment and Economic Growth Cycles," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 12(2), pages 1-21, May.
    7. Kumar, Anil & M. Orrenius, Pia, 2016. "A closer look at the Phillips curve using state-level data," Journal of Macroeconomics, Elsevier, vol. 47(PA), pages 84-102.
    8. Phiri, Andrew, 2015. "Examining asymmetric effects in the South African Philips curve: Evidence from logistic smooth transition regression (LSTR) models," MPRA Paper 64487, University Library of Munich, Germany.
    9. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.
    10. Nishizaki, Kenji & Watanabe, Tsutomu, 2000. "Output-Inflation Trade-Off at Near-Zero Inflation Rates," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 304-326, December.
    11. Roa, María José & Saura, Dulce & Vázquez, Francisco J., 2011. "Economic growth, labor market and demographic patterns," Structural Change and Economic Dynamics, Elsevier, vol. 22(1), pages 81-91, February.
    12. Miguel St. Aubyn, 2000. "Testing for Asymmetry in the Inflation-Unemployment Trade-off: Some Evidence for the USA," Working Papers Department of Economics 2000/05, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    13. Clark, Peter B. & Goodhart, Charles A. E. & Huang, Haizhou, 1999. "Optimal monetary policy rules in a rational expectations model of the Phillips curve," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 497-520, April.
    14. Eric Schaling, 1999. "The non-linear Phillips curve and inflation forecast targeting," Bank of England working papers 98, Bank of England.
    15. Janet L. Yellen & George A. Akerlof, 2006. "Stabilization Policy: A Reconsideration," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 1-22, January.
    16. Reckwerth, Jürgen, 1997. "Der Zusammenhang zwischen Inflation und Output in Deutschland unter besonderer Berücksichtigung der Inflationserwartungen," Discussion Paper Series 1: Economic Studies 1997,05, Deutsche Bundesbank.
    17. Cipollone, Piero & Marchetti, Domenico J., 2001. "Bottlenecks and limits to growth: A multisectoral analysis of Italian industry," Journal of Policy Modeling, Elsevier, vol. 23(6), pages 601-620, August.
    18. Ciccarelli, Matteo & Osbat, Chiara, 2017. "Low inflation in the euro area: Causes and consequences," Occasional Paper Series 181, European Central Bank.
    19. Mark S Astley & Tony Yates, 1999. "Inflation and real disequilibria," Bank of England working papers 103, Bank of England.

    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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