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The fragility of the Phillips curve: A bumpy ride in the frequency domain

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  • Feng Zhu

Abstract

We provide a robustness check of the US Phillips curve in the frequency domain. We design frequency-specific coeffcients of correlation (FSCC) and regression (FSCR), based on our frequency-specific data extraction procedure. Being real-valued, signed and normalised, the FSCC is superior to traditional indicators such as coherence and cospectrum. Our FSCC and FSCR estimates suggest that the Phillips tradeoffs vary greatly across frequencies, with frequent sign reversals. They seem to be stable in higher frequencies, but unstable in low and medium frequencies, and they are sensitive to the level and boundaries of frequency aggregation, to the way data are processed prior to analysis (eg detrending) and to the type of variables used. In this sense, the Phillips curves are fragile. The impact of potential cross-frequency model inconsistency on model estimation using conventional time domain methods needs careful scrutiny.

Suggested Citation

  • Feng Zhu, 2005. "The fragility of the Phillips curve: A bumpy ride in the frequency domain," BIS Working Papers 183, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:183
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    References listed on IDEAS

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    1. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 147-180.
    2. Mankiw, N Gregory, 2001. "The Inexorable and Mysterious Tradeoff between Inflation and Unemployment," Economic Journal, Royal Economic Society, vol. 111(471), pages 45-61, May.
    3. Fisher, Mark E & Seater, John J, 1993. "Long-Run Neutrality and Superneutrality in an ARIMA Framework," American Economic Review, American Economic Association, vol. 83(3), pages 402-415, June.
    4. Flint Brayton & John M. Roberts & John C. Williams, 1999. "What's happened to the Phillips curve?," Finance and Economics Discussion Series 1999-49, Board of Governors of the Federal Reserve System (U.S.).
    5. Tan, Hui Boon & Ashley, Richard, 1999. "Detection And Modeling Of Regression Parameter Variation Across Frequencies," Macroeconomic Dynamics, Cambridge University Press, vol. 3(01), pages 69-83, March.
    6. Berkowitz, Jeremy, 2001. "Generalized spectral estimation of the consumption-based asset pricing model," Journal of Econometrics, Elsevier, vol. 104(2), pages 269-288, September.
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    Citations

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    Cited by:

    1. Mallick, Debdulal, 2016. "Policy Regimes and the Shape of the Phillips Curve in Australia," MPRA Paper 71082, University Library of Munich, Germany, revised 2016.
    2. Virén, Matti, 2005. "Inflation expectations and regime shifts in the euro area," Research Discussion Papers 25/2005, Bank of Finland.
    3. Mallick, Debdulal, 2014. "A Spectral Representation of the Phillips Curve in Australia," MPRA Paper 59794, University Library of Munich, Germany.
    4. Matti Viren, 2006. "Inflation Expectations and Regime Shifts," Discussion Papers 5, Aboa Centre for Economics.
    5. Mayes David & Paloviita Maritta & Viren Matti, 2015. "The EMU and the anchoring of inflation expectations?," Discussion Papers 103, Aboa Centre for Economics.

    More about this item

    Keywords

    Phillips curve; inflation-output tradeoff; fltering; frequency-specic coefficient of correlation; spectral regression;

    JEL classification:

    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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