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Incorporating Anchored Inflation Expectations in the Phillips Curve and in the Derivation of OECD Measures of Equilibrium Unemployment


  • Elena Rusticelli
  • David Turner


  • Maria Chiara Cavalleri



Inflation has become much less sensitive to movements in unemployment in recent decades. A common explanation for this change is that inflation expectations have become better anchored as a consequence of credible inflation targeting by central banks. In order to evaluate this hypothesis, the paper compares two competing empirical specifications across all OECD economies, where competing specifications correspond to the ‘former’ and ‘new’ specification for deriving measures of the unemployment gap which underlie the OECD’s Economic Outlook projections. The former OECD specification can be characterised as a traditional ‘backward-looking’ Phillips curve, where current inflation is partly explained by an autoregressive distributed lag process of past inflation representing both inertia and inflation expectations formed on the basis of recent inflation outcomes. Conversely, the new approach adjusts this specification to incorporate the notion that inflation expectations are anchored around the central bank’s inflation objective. The main finding of the paper is that the latter approach systematically out-performs the former for an overwhelming majority of OECD countries over a recent sample period. Relative to the backward-looking specification, the anchored expectations approach also tends to imply larger unemployment gaps for those countries for which actual unemployment has increased the most. Moreover, the anchored expectations Phillips curve reduces real-time revisions to the unemployment gap, although these still remain uncomfortably large, in the case of countries where there have been large changes in unemployment. Intégrer des anticipations ancrées d'inflation à la courbe de Phillips pour le calcul de mesures du chômage d'équilibre L'inflation est devenue beaucoup moins sensible aux fluctuations du chômage au cours des dernières décennies. Une explication couramment avancée à cet égard, est que l'ancrage des anticipations d'inflation s'est amélioré. Ni cette explication ni l'approche économétrique retenue ne sont nouvelles, mais un des apports de ce document tient au fait que nous y utilisons deux spécifications économétriques différentes pour l'ensemble des économies de l'OCDE, celles-ci correspondant à l'« ancienne » et à la « nouvelle » spécifications employées pour calculer les mesures de l'écart de chômage sur lesquelles reposent les prévisions des Perspectives économiques de l'OCDE. L'ancienne spécification employée par l'OCDE peut être caractérisée comme une courbe de Phillips « rétrospective » classique, suivant laquelle l'inflation est expliquée en partie à l'aide d'un modèle autorégressif à retards échelonnés appliqué à l'inflation antérieure, représentant à la fois l'inertie de l'inflation et les anticipations d'inflation formées sur la base des récents résultats d'inflation. Inversement, la nouvelle approche consiste à ajuster cette spécification de manière à intégrer la notion que les anticipations d'inflation sont ancrées aux alentours de l'objectif d'inflation de la banque centrale. La principale conclusion de ce document est que la nouvelle approche donne systématiquement de meilleurs résultats que l'ancienne pour une écrasante majorité de pays de l'OCDE sur une période d'observation récente. Par rapport à la spécification rétrospective, l'approche fondée sur les anticipations ancrées tend également à mettre en évidence des écarts de chômage plus importants pour les pays où le taux de chômage effectif a le plus augmenté. En outre, la courbe de Phillips fondée sur des anticipations ancrées réduit les révisions en temps réel de l'écart de chômage, même si celles-ci restent d'une ampleur préoccupante, dans le cas des pays où le chômage a fortement varié.

Suggested Citation

  • Elena Rusticelli & David Turner & Maria Chiara Cavalleri, 2015. "Incorporating Anchored Inflation Expectations in the Phillips Curve and in the Derivation of OECD Measures of Equilibrium Unemployment," OECD Economics Department Working Papers 1231, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1231-en
    DOI: 10.1787/5js1gmq551wd-en

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    Cited by:

    1. Carlos Medel, 2018. "An econometric analysis on survey-data-based anchoring of inflation expectations in Chile," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 21(2), pages 128-152, August.
    2. Patrik Kupkovic, 2020. "R-star in Transition Economies: Evidence from Slovakia," Working and Discussion Papers WP 3/2020, Research Department, National Bank of Slovakia.
    3. Inayat U. Mangla & Kalim Hyder, 2017. "Global Uncertainty and Monetary Policy Effectiveness in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 22(Special E), pages 111-134, September.
    4. Punnoose Jacob & Martin Wong, 2018. "Estimating the NAIRU and the Natural Rate of Unemployment for New Zealand," Reserve Bank of New Zealand Analytical Notes series AN2018/04, Reserve Bank of New Zealand.

    More about this item


    Anchored expectations; anticipations ancrées; chômage d’équilibre; courbe de Phillips; equilibrium unemployment; Phillips curve; real-time revisions; révisions en temps réel;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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