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The Phillips Curve at 60: time for time and frequency

Author

Listed:
  • Luís Aguiar-Conraria

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

  • Manuel M. F. Martins

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

  • Maria Joana Soares

    () (NIPE and Department of Mathematics and Applications, 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 find that the short-run tradeoff is limited to some specific 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 significant 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," CEF.UP Working Papers 1902, Universidade do Porto, Faculdade de Economia do Porto.
  • Handle: RePEc:por:cetedp:1902
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    References listed on IDEAS

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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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