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The Phillips curve, parameter instability and the Lucas critique


  • Paul Turner


Empirical estimation of Phillips curve relationships typically indicates the presence of parameter instability. This is argued to be due to the fact that the parameters of these equations are reduced form rather than structural parameters. Estimation of a Phillips curve model by methods which allow for time-varying parameters permits investigation of the nature and timing of the structural breaks which generate instability. This paper estimates such a model by the Kalman filter using quarterly data over the period 1972.4 to 1993.3. We find evidence of a gradual decline in the private sector's assessment of the steady-state inflation rate during the 1980s, but little evidence of the sort of dramatic regime shift predicted by some of the more extreme rational expectations models.

Suggested Citation

  • Paul Turner, 1997. "The Phillips curve, parameter instability and the Lucas critique," Applied Economics, Taylor & Francis Journals, vol. 29(1), pages 7-10.
  • Handle: RePEc:taf:applec:v:29:y:1997:i:1:p:7-10
    DOI: 10.1080/000368497327344

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    Cited by:

    1. Ernest Gnan & Maria Teresa Valderrama, 2006. "Globalization, Inflation and Monetary Policy," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 37-54.
    2. Mihaela Simionescu, 2014. "Testing The Existence And Stability Of Phillips Curve In Romania," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 10(1), pages 67-74.
    3. repec:gam:jecomi:v:5:y:2017:i:3:p:24-:d:103909 is not listed on IDEAS
    4. Malikane, Christopher, 2014. "Traditional Inflation Dynamics," MPRA Paper 61427, University Library of Munich, Germany.
    5. Islam, Faridul & Shahbaz, Muhammad & Shabbir, Muhammad, 2011. "Phillips curve in a small open economy: A time series exploration of North Cyprus," MPRA Paper 28397, University Library of Munich, Germany.

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