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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.

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:wly:jmoncb:v:39:y:2007:i:5:p:1275-1283
    DOI: 10.1111/j.1538-4616.2007.00066.x
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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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