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The Long-Run Phillips Curve is ... a Curve

Author

Listed:
  • Ascari, Guido
  • Bonomolo, Paolo
  • Haque, Qazi

Abstract

In U.S. data, inflation and output are negatively related in the long run. A piecewise linear Bayesian VAR provides evidence in favor of a threshold level of trend inflation of around 4%, below which potential output is independent of trend inflation, and above which, potential output is negatively impacted. Every percentage point increase in trend inflation above the threshold is related to about 1% decrease in potential output. An estimated New Keynesian model generalized allowing time-varying trend inflation yields a structural long-run Phillips Curve that is statistically similar to the one implied by the reduced-form piecewise linear BVAR model.

Suggested Citation

  • Ascari, Guido & Bonomolo, Paolo & Haque, Qazi, 2024. "The Long-Run Phillips Curve is ... a Curve," CEPR Discussion Papers 19069, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19069
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    Cited by:

    1. is not listed on IDEAS
    2. Anis Foresto & Monique Reid & Jeffrey Rakgalakane, 2025. "State dependence of the Phillips curve what does this mean for monetary policy," Working Papers 11080, South African Reserve Bank.
    3. Andrea Renzetti, 2023. "Theory coherent shrinkage of Time-Varying Parameters in VARs," Papers 2311.11858, arXiv.org, revised Nov 2024.
    4. Gibbs, Christopher G. & Xin, Herbert W., 2024. "The sacrifice ratio and active fiscal policy," Economics Letters, Elsevier, vol. 245(C).

    More about this item

    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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