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

  • Feng Zhu
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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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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 183.

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Length: 46 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:bis:biswps:183
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  1. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
  2. 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.).
  3. Berkowitz, Jeremy, 2001. "Generalized spectral estimation of the consumption-based asset pricing model," Journal of Econometrics, Elsevier, vol. 104(2), pages 269-288, September.
  4. 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.
  5. N. Gregory Mankiw, 2000. "The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment," Harvard Institute of Economic Research Working Papers 1905, Harvard - Institute of Economic Research.
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