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The Phillips Curve at 60: time for time and frequency

Author

Listed:
  • Luís Aguiar-Conraria

    (Department of Economics / NIPE, University of Minho)

  • Manuel M. F. Martins

    (Cef.up and Faculty of Economics, University of Porto,)

  • Maria Joana Soares

    (NIPE and Department of Mathematics, University of Minho,)

Abstract

We estimate the U.S. New Keynesian Phillips Curve in the time-frequency domain with continuous wavelet tools, to provide an integrated answer to the three most controversial issues on the Phillips Curve. (1) Has the short-run tradeoff been stable? (2) What has been the role of expectations? (3)Is there a long-run tradeoff? First, we fi nd that the short-run tradeoff is limited to some speci c episodes and short cycles and that there is no evidence of nonlinearities or structural breaks. Second, households expectations captured trend inflation and were anchored until the Great Recession, but not since 2008. Then, inflation over-reacted to expectations at short cycles. Finally, there is no signi cant long-run tradeoff. In the long-run, inflation is explained by expectations.

Suggested Citation

  • Luís Aguiar-Conraria & Manuel M. F. Martins & Maria Joana Soares, 2019. "The Phillips Curve at 60: time for time and frequency," NIPE Working Papers 04/2019, NIPE - Universidade do Minho.
    • Handle: RePEc:nip:nipewp:04/2019
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    Citations

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    Cited by:

    1. Fratianni, Michele & Gallegati, Marco & Giri, Federico, 2022. "The medium-run Phillips curve: A time–frequency investigation for the UK," Journal of Macroeconomics, Elsevier, vol. 73(C).
    2. Derek Zweig, 2020. "Market Power, NAIRU, and the Phillips Curve," Abstract and Applied Analysis, Hindawi, vol. 2020, pages 1-18, December.
    3. Martins, Manuel Mota Freitas & Verona, Fabio, 2020. "Forecasting inflation with the New Keynesian Phillips curve: Frequency matters," Bank of Finland Research Discussion Papers 4/2020, Bank of Finland.
    4. 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.
    5. Manuel M. F. Martins & Fabio Verona, 2021. "Inflation Dynamics and Forecast: Frequency Matters," CEF.UP Working Papers 2101, Universidade do Porto, Faculdade de Economia do Porto.
    6. Weider Loureto Alves & Roberto Tatiwa Ferreira, 2023. "Phillips curve and the exchange rate pass-through: a time–frequency approach," Empirical Economics, Springer, vol. 64(5), pages 2165-2181, May.
    7. repec:zbw:bofrdp:2021_008 is not listed on IDEAS
    8. Manuel M. F. Martins & Fabio Verona, 2021. "Inflation Dynamics and Forecast: Frequency Matters," CEF.UP Working Papers 2101, Universidade do Porto, Faculdade de Economia do Porto.
    9. repec:zbw:bofrdp:2020_004 is not listed on IDEAS
    10. Roedl, Marianne & Dupont, Genevieve, 2020. "Monetary policy implications of the COVID-19 outbreak, the social pandemic," MPRA Paper 99981, University Library of Munich, Germany.
    11. Jinshun Wu & Luyao Wu, 2024. "Bayesian Local Likelihood Estimation of Time-Varying DSGE Models: Allowing for Indeterminacy," Computational Economics, Springer;Society for Computational Economics, vol. 64(4), pages 2437-2476, October.
    12. Manuel M. F. Martins & Fabio Verona, 2020. "Forecasting Inflation with the New Keynesian Phillips Curve: Frequency Matters," CEF.UP Working Papers 2001, Universidade do Porto, Faculdade de Economia do Porto.
    13. Michele Fratianni & Marco Gallegati & Federico Giri, 2019. "Mr Phillips and the medium-run: temporal instability vs. frequency stability," Mo.Fi.R. Working Papers 155, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.

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    Keywords

    Phillips Curve; Inflation; Unemployment; Business Cycles; Continuous Wavelet Transform; Partial Wavelet Gain;
    All these keywords.

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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