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Estimating United States Phillips Curves With Expectations Consistent With The Statistical Process Of Inflation

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  • Russell, Bill
  • Chowdhury, Rosen Azad

Abstract

‘Modern’ Phillips curve theories predict inflation is an integrated, or near integrated, process. However, inflation appears bounded above and below in developed economies and so cannot be ‘truly’ integrated and more likely stationary around a shifting mean. If agents believe inflation is integrated as in the ‘modern’ theories then they are making systematic errors concerning the statistical process of inflation. An alternative theory of the Phillips curve is developed that is consistent with the ‘true’ statistical process of inflation. It is demonstrated that United States inflation data is consistent with the alternative theory but not with the existing ‘modern’ theories.

Suggested Citation

  • Russell, Bill & Chowdhury, Rosen Azad, 2012. "Estimating United States Phillips Curves With Expectations Consistent With The Statistical Process Of Inflation," SIRE Discussion Papers 2012-13, Scottish Institute for Research in Economics (SIRE).
  • Handle: RePEc:edn:sirdps:316
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    File URL: http://hdl.handle.net/10943/316
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    References listed on IDEAS

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    1. Russell, Bill, 2011. "Non-stationary inflation and panel estimates of United States short and long-run Phillips curves," Journal of Macroeconomics, Elsevier, pages 406-419.
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    Cited by:

    1. Bill Russell & Dooruj Rambaccussing, 2016. "Breaks and the Statistical Process of Inflation: The Case of the ‘Modern’ Phillips Curve," Dundee Discussion Papers in Economics 294, Economic Studies, University of Dundee.
    2. Bill Russell, 2014. "ARCH and structural breaks in United States inflation," Applied Economics Letters, Taylor & Francis Journals, pages 973-978.
    3. Russel, Bill, 2015. "'Modern' Phillips Curves and the Implications For The Statistical Process of Inflation," SIRE Discussion Papers 2015-84, Scottish Institute for Research in Economics (SIRE).
    4. Russel, Bill, 2015. "'Modern' Phillips Curves and the Implications For The Statistical Process of Inflation," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-84, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Russell, Bill, 2013. "Macroeconomics: Science or Faith Based Discipline?," SIRE Discussion Papers 2013-114, Scottish Institute for Research in Economics (SIRE).

    More about this item

    Keywords

    Phillips curve; inflation; structural breaks; GARCH; nonstationary data;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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