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An Estimation of the Nonlinear Philips Curve in Colombia

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  • Javier Gómez

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  • Juan Manuel Julio

Abstract

As originally drawn and estimated by professor Phillips, the Phillips curve is a curve indeed, not a straight line as often thought. Following Laxton, et. al. (1999)we estimate a convex Phillips curve and model the NAIRU as a variable that is unobserved. Using Colombian data, we provide confidence bands for the NAIRU and report estimates sacrifice rations. Using the unobserved components methodology along with the Kalman filter, we find evidence in favor of a nonlinear Phillips curve and no evidence against a NAIRU that is constant . This later finding is explained by the high level of uncertainty in the estimation of the NAIRU. Nonlinearity implies that the sacrifice ratio increases with unemployment, in other words, the cost of decreasing inflation is higher the higher the unemployment rate.

Suggested Citation

  • Javier Gómez & Juan Manuel Julio, 2000. "An Estimation of the Nonlinear Philips Curve in Colombia," Borradores de Economia 160, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:borrec:160
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    References listed on IDEAS

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    1. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    2. 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.
    3. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    4. Enrique López E. & Martha Misas A., 1998. "Un examen empírico de la curva de Phillips en Colombia," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 17(34), pages 39-87, Diciembre.
    5. Orphanides, Athanasios & Wilcox, David W, 2002. "The Opportunistic Approach to Disinflation," International Finance, Wiley Blackwell, vol. 5(1), pages 47-71, Spring.
    6. Frank Smets, 2002. "Output gap uncertainty: Does it matter for the Taylor rule?," Empirical Economics, Springer, vol. 27(1), pages 113-129.
    7. P Clark & D Laxton, 1997. "Phillips Curves," CEP Discussion Papers dp0344, Centre for Economic Performance, LSE.
    8. King, Robert G. & Watson, Mark W., 1994. "The post-war U.S. phillips curve: a revisionist econometric history," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 157-219, December.
    9. Douglas O. Staiger & James H. Stock & Mark W. Watson, 1997. "How Precise Are Estimates of the Natural Rate of Unemployment?," NBER Chapters,in: Reducing Inflation: Motivation and Strategy, pages 195-246 National Bureau of Economic Research, Inc.
    10. Jean-François Fillion & André Léonard, 1997. "La courbe de Phillips au Canada : un examen de quelques hypothèses," Staff Working Papers 97-3, Bank of Canada.
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    Cited by:

    1. José Luis Torres, 2006. "Modelos para la Inflación Básica de Bienes Transables y No Transables en Colombia," BORRADORES DE ECONOMIA 003246, BANCO DE LA REPÚBLICA.
    2. Lina María Vásquez & Luis Edgar Basto, 2004. "Balance estructural, dinámica y volatilidad de la deuda," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 22(46-1), pages 26-81, Diciembre.
    3. 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.
    4. Juan Manuel Julio, 2001. "How Uncertain are NAIRU Estimates in Colombia?," BORRADORES DE ECONOMIA 002798, BANCO DE LA REPÚBLICA.
    5. Willi SEMMLER & Wenlang ZHANG, "undated". "Monetary Policy Rules with Nonlinear Philips Curve and Endogenous Nairu," EcoMod2004 330600128, EcoMod.
    6. Jorge E. Restrepo L., 2008. "Estimating the NAIRU for Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 11(2), pages 31-46, August.
    7. Wilman Gomez, 2014. "Business cycle asymmetries: Loss aversion, sticky prices, and wages," DOCUMENTOS DE TRABAJO 011756, UNIVERSIDAD DEL ROSARIO.
    8. Jorge E. Restrepo, 2008. "Estimaciones de NAIRU para Chile," Investigación Conjunta-Joint Research,in: Centro de Estudios Monetarios Latinoamericanos (CEMLA) (ed.), Estimación y Uso de Variables no Observables en la Región, edition 1, volume 1, chapter 16, pages 492-516 Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    9. Jorge E. Restrepo, 2006. "Estimaciones de NAIRU para Chile," Working Papers Central Bank of Chile 361, Central Bank of Chile.
    10. Mario Nigrinis Ospina, 2004. "Es lineal la Curva de Phillips en Colombia?," Borradores de Economia 282, Banco de la Republica de Colombia.

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