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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.

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  • 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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    Cited by:

    1. Mallick, Debdulal, 2019. "Policy regimes and the shape of the Phillips curve in Australia," Journal of Policy Modeling, Elsevier, vol. 41(6), pages 1077-1094.
    2. Feng Zhu, 2016. "Understanding the changing equilibrium real interest rates in Asia-Pacific," BIS Working Papers 567, Bank for International Settlements.
    3. Virén, Matti, 2005. "Inflation expectations and regime shifts in the euro area," Research Discussion Papers 25/2005, Bank of Finland.
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    5. Virén, Matti, 2005. "Inflation expectations and regime shifts in the euro area," Bank of Finland Research Discussion Papers 25/2005, Bank of Finland.
    6. Mallick, Debdulal, 2014. "A Spectral Representation of the Phillips Curve in Australia," MPRA Paper 59794, University Library of Munich, Germany.
    7. Jinho Choi & Juan Carlos Escanciano & Junjie Guo, 2022. "Generalized band spectrum estimation with an application to the New Keynesian Phillips curve," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(5), pages 1055-1078, August.
    8. Matti Viren, 2006. "Inflation Expectations and Regime Shifts," Discussion Papers 5, Aboa Centre for Economics.
    9. Mayes, David G. & Paloviita, Maritta & Virén, Matti, 2016. "EMU and the Anchoring of Inflation Expectations," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 69(4), pages 341-364.
    10. Junjie Guo & Juan Carlos Escanciano & Jinho Choi, 2017. "Identification and Generalized Band Spectrum Estimation of the New Keynesian Phillips Curve," CAEPR Working Papers 2017-014, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.

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    More about this item

    Keywords

    Phillips curve; inflation-output tradeoff; fltering; frequency-specic coefficient of correlation; spectral regression;
    All these keywords.

    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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