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Phillips Curve (phillip + curve)
Kinds of Phillips Curve Selected AbstractsA Parametric Approach to Flexible Nonlinear InferenceECONOMETRICA, Issue 3 2001James D. Hamilton This paper proposes a new framework for determining whether a given relationship is nonlinear, what the nonlinearity looks like, and whether it is adequately described by a particular parametric model. The paper studies a regression or forecasting model of the form yt=,(xt)+,t where the functional form of ,(,) is unknown. We propose viewing ,(,) itself as the outcome of a random process. The paper introduces a new stationary random field m(,) that generalizes finite-differenced Brownian motion to a vector field and whose realizations could represent a broad class of possible forms for ,(,). We view the parameters that characterize the relation between a given realization of m(,) and the particular value of ,(,) for a given sample as population parameters to be estimated by maximum likelihood or Bayesian methods. We show that the resulting inference about the functional relation also yields consistent estimates for a broad class of deterministic functions ,(,). The paper further develops a new test of the null hypothesis of linearity based on the Lagrange multiplier principle and small-sample confidence intervals based on numerical Bayesian methods. An empirical application suggests that properly accounting for the nonlinearity of the inflation-unemployment trade-off may explain the previously reported uneven empirical success of the Phillips Curve. [source] Reconciling the Wage Curve and the Phillips CurveJOURNAL OF ECONOMIC SURVEYS, Issue 5 2005Víctor M. Montuenga-Gómez Abstract., The wage curve is the negative relationship that links wage levels to the unemployment rate. It fits accurately with modern non-competitive labour-market models, but goes against a Phillips-curve modelling, because the latter ties wage growth to the unemployment rate. In this article, we present a comprehensive review of these non-competitive models, highlighting recent contributions that try to eliminate the possible ,gap' that exists between the concepts of the wage curve, on the one hand, and the Phillips curve, on the other. [source] Estimating the New Keynesian Phillips Curve: A Vertical Production Chain ApproachJOURNAL OF MONEY, CREDIT AND BANKING, Issue 4 2008ADAM HALE SHAPIRO New Keynesian Phillips Curve; generalized method of moments; vertical production chain; inflation It has become customary to estimate the New Keynesian Phillips Curve (NKPC) with generalized method of moments using a large instrument set that includes lags of variables that are ad hoc to the firm's price-decision problem. Researchers have also conventionally used real unit labor cost (RULC) as the proxy for real marginal cost even though it is difficult to support its significance. This paper introduces a new proxy for the real marginal cost term as well as a new instrument set, both of which are based on the micro foundations of the vertical chain of production. I find that the new proxy, based on input prices as opposed to wages, provides a more robust and significant fit to the model. Instruments that are based on the vertical chain of production appear to be both more valid and relevant toward the model. [source] The New Keynesian Phillips Curve: From Sticky Inflation to Sticky PricesJOURNAL OF MONEY, CREDIT AND BANKING, Issue 4 2008CHENGSI ZHANG New Keynesian Phillips Curve; inflation survey forecasts; sticky prices; structural breaks; monetary policy The New Keynesian Phillips Curve (NKPC) model of inflation dynamics based on forward-looking expectations is of great theoretical significance in monetary policy analysis. Empirical studies, however, often find that backward-looking inflation inertia dominates the dynamics of the short-run aggregate supply curve. This inconsistency is examined by investigating multiple structural changes in the NKPC for the U.S. between 1960 and 2005, employing both inflation expectations survey data and a rational expectations approximation. We find that forward-looking behavior plays a smaller role during the high and volatile inflation regime to 1981 than in the subsequent period of moderate inflation, providing empirical support for sticky price models over the last two decades. A break in the intercept of the NKPC is also identified around 2001 and this may be associated with U.S. monetary policy in that period. [source] Testing the New Keynesian Phillips Curve Through Vector Autoregressive Models: Results from the Euro Area,OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 1 2008Luca Fanelli Abstract This paper addresses the issue of testing the ,hybrid' New Keynesian Phillips curve (NKPC) through vector autoregressive (VAR) systems and likelihood methods, giving special emphasis to the case where the variables are non-stationary. The idea is to use a VAR for both the inflation rate and the explanatory variable(s) to approximate the dynamics of the system and derive testable restrictions. Attention is focused on the ,inexact' formulation of the NKPC. Empirical results over the period 1971,98 show that the NKPC is far from providing a ,good first approximation' of inflation dynamics in the Euro area. [source] Stabilising Properties of Discretionary Monetary Policies in a Small Open Economy,THE ECONOMIC JOURNAL, Issue 508 2006Alfred V. Guender This article sets out a simple New Keynesian open-economy model and shows that the conduct of discretionary monetary policy in an open economy differs substantially from the closed-economy framework. The article shows analytically that the existence of the direct exchange rate channel in the open economy Phillips Curve impairs the perfect stabilising property of monetary policy in the face of demand-side disturbances under domestic inflation targeting. If CPI inflation is instead the target, then the perfect stabilising property of monetary policy breaks down even in the absence of the direct exchange rate channel in the Phillips Curve. [source] The Backward,Bending Phillips Curve And The Minimum Unemployment Rate Of Inflation: Wage Adjustment With Opportunistic FirmsTHE MANCHESTER SCHOOL, Issue 1 2003Thomas I. PalleyArticle first published online: 12 FEB 200 This paper presents a theory of the backward,bending Phillips curve. There is aminimum unemployment rate of inflation which offers a policy alternative to the non,accelerating inflation rate of unemployment. Nominal wages are downwardly rigid because workers oppose cuts initiated from within the employment relation. Instead, workers may acceptreal wage adjustments effected by increases in the general price level, a variableoutside individual firms' control. This is why inflation ,greases'labor market adjustment. However, workers resist too rapid a real wage adjustment,and too high an inflation generates wage resistance that cancels the grease effect and increases unemployment. [source] Supply, Factor Shares and Inflation Persistence: Re-examining Euro-area New-Keynesian Phillips Curves,OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 2004Peter McAdam Abstract Using euro-area data, we re-examine the empirical success of New-Keynesian Phillips curves (NKPCs). We re-estimate with a suitably specified optimizing supply side (which attempts to treat non-stationarity in factor income shares and mark-ups) that allows us to derive estimates of technology parameters, marginal costs and ,price gaps'. Our resulting estimates of the euro-area NKPCs are robust, provide reasonable estimates for fixed-price durations and discount rates and embody plausible dynamic properties. Our method for identifying the underlying determinants of NKPCs has general applicability to a wide set of countries as well as of use for sectoral studies. [source] Activist Macroeconomic Policy, Election Effects and the Formation of Expectations: Evidence from OECD EconomiesECONOMICS & POLITICS, Issue 2 2000David Kiefer We examine the explanatory power of a political,business cycle theory in which governments practice short-run policy to lessen the impact of exogenous shocks. Governments have ideological objectives with respect to macroeconomic performance, but are constrained by an augmented Phillips curve. The most prominent version, the rational partisan model, incorporates forward-looking expectations. This model can be compared to a competing model based on backward-looking expectations. Alesina and Roubini's recent advocacy of the rational model uses OECD data. Our reconsideration of the same data, updated to 1995, suggests that the adaptive expectations version offers a better explanation than the rational one. [source] Identifying the new Keynesian Phillips curveJOURNAL OF APPLIED ECONOMETRICS, Issue 5 2008James M. Nason Phillips curves are central to discussions of inflation dynamics and monetary policy. The hybrid new Keynesian Phillips curve (NKPC) describes how past inflation, expected future inflation, and a measure of real aggregate demand drive the current inflation rate. This paper studies the (potential) weak identification of the NKPC under Generalized Method of Moments and traces this syndrome to a lack of higher-order dynamics in exogenous variables. We employ analytic methods to understand the economics of the NKPC identification problem in the canonical three-equation, new Keynesian model. We revisit the empirical evidence for the USA, the UK, and Canada by constructing tests and confidence intervals based on the Anderson and Rubin (1949) statistic, which is robust to weak identification. We also apply the Guggenberger and Smith (2008) LM test to the underlying NKPC pricing parameters. Both tests yield little evidence of forward-looking inflation dynamics. Copyright © 2008 John Wiley & Sons, Ltd. [source] Reconciling the Wage Curve and the Phillips CurveJOURNAL OF ECONOMIC SURVEYS, Issue 5 2005Víctor M. Montuenga-Gómez Abstract., The wage curve is the negative relationship that links wage levels to the unemployment rate. It fits accurately with modern non-competitive labour-market models, but goes against a Phillips-curve modelling, because the latter ties wage growth to the unemployment rate. In this article, we present a comprehensive review of these non-competitive models, highlighting recent contributions that try to eliminate the possible ,gap' that exists between the concepts of the wage curve, on the one hand, and the Phillips curve, on the other. [source] Optimal Monetary Policy in a Model with Agency CostsJOURNAL OF MONEY, CREDIT AND BANKING, Issue 2010CHARLES T. CARLSTROM optimal monetary policy; agency costs This paper integrates a fully explicit model of agency costs into an otherwise standard Dynamic New Keynesian model in a particularly transparent way. A principal result is the characterization of agency costs as endogenous markup shocks in an output-gap version of the Phillips curve. The model's utility-based welfare criterion is derived explicitly and includes a measure of credit market tightness that we interpret as a risk premium. The paper also fully characterizes optimal monetary policy and provides conditions under which zero inflation is the optimal policy. Finally, optimal policy can be expressed as an inflation targeting criterion that (depending upon parameter values) can be either forward or backward looking. [source] New Keynesian Macroeconomics and the Term StructureJOURNAL OF MONEY, CREDIT AND BANKING, Issue 1 2010GEERT BEKAERT monetary policy; inflation target; term structure of interest rates; Phillips curve This article complements the structural New Keynesian macro framework with a no-arbitrage affine term structure model. Whereas our methodology is general, we focus on an extended macro model with unobservable processes for the inflation target and the natural rate of output that are filtered from macro and term structure data. We find that term structure information helps generate large and significant parameters governing the monetary policy transmission mechanism. Our model also delivers strong contemporaneous responses of the entire term structure to various macroeconomic shocks. The inflation target shock dominates the variation in the "level factor" whereas monetary policy shocks dominate the variation in the "slope and curvature factors." [source] The Impact of Central Bank Independence on Political Monetary Cycles in Advanced and Developing NationsJOURNAL OF MONEY, CREDIT AND BANKING, Issue 7 2009SAMI ALPANDA political monetary cycles; central bank independence This paper examines the extent to which monetary policy is manipulated for political purposes during elections. We do not detect political monetary cycles in advanced countries or developing nations with independent central banks. We do find evidence, however, in developing countries that lack central bank independence. Furthermore, we find some evidence that these cycles are not caused by monetization of election-related fiscal expansions. This suggests that pressure by politicians on the central bank to exploit the Phillips curve may be an important factor in generating political monetary cycles. [source] What Makes the Output,Inflation Trade-Off Change?JOURNAL OF MONEY, CREDIT AND BANKING, Issue 6 2009The Absence of Accelerating Deflation in Japan Phillips curve; time-varying parameter models; endogenous pricing It is standard to model the output,inflation trade-off as a linear relationship with a time-invariant slope. We assess empirical evidence for two sets of theories that allow for endogenous variation in the slope of the short-run Phillips curve. At an empirical level, we examine why large negative output gaps in Japan in the late 1990s did not lead to accelerating deflation but instead coincided with stable, albeit moderately negative inflation. Our results suggest that this episode is most convincingly interpreted as reflecting a gradual flattening of the Phillips curve. We find that this flattening is best explained by models with endogenous price durations. These models imply that in any economy where trend inflation is substantially lower (or substantially higher) today than in past decades, time variation in the slope of the Phillips curve has become too important to ignore. [source] How Important Is Money in the Conduct of Monetary Policy?JOURNAL OF MONEY, CREDIT AND BANKING, Issue 8 2008MICHAEL WOODFORD monetarism; two-pillar strategy; cashless economy I consider some of the leading arguments for assigning an important role to tracking the growth of monetary aggregates when making decisions about monetary policy. First, I consider whether ignoring money means returning to the conceptual framework that allowed the high inflation of the 1970s. Second, I consider whether models of inflation determination with no role for money are incomplete, or inconsistent with elementary economic principles. Third, I consider the implications for monetary policy strategy of the empirical evidence for a long-run relationship between money growth and inflation. And fourth, I consider reasons why a monetary policy strategy based solely on short-run inflation forecasts derived from a Phillips curve may not be a reliable way of controlling inflation. I argue that none of these considerations provides a compelling reason to assign a prominent role to monetary aggregates in the conduct of monetary policy. [source] Why Has U.S. Inflation Become Harder to Forecast?JOURNAL OF MONEY, CREDIT AND BANKING, Issue 2007JAMES H. STOCK Phillips curve; trend-cycle model; moving average; great moderation We examine whether the U.S. rate of price inflation has become harder to forecast and, to the extent that it has, what changes in the inflation process have made it so. The main finding is that the univariate inflation process is well described by an unobserved component trend-cycle model with stochastic volatility or, equivalently, an integrated moving average process with time-varying parameters. This model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well. [source] TESTING WAGE AND PRICE PHILLIPS CURVES FOR THE UNITED STATESMETROECONOMICA, Issue 4 2007Peter Flaschel ABSTRACT This paper demonstrates how the labour and product markets interact in determining as outcome a generalized reduced-form price Phillips curve. For the labour market we consider a wage Phillips curve and for the product market a price Phillips curve. We estimate separately the wage and price Phillips curves for the USA, using ordinary least squares, non-parametric estimation and three-stage least squares techniques. The finding is that wages are always more flexible than prices with respect to their respective demand pressure and that price inflation responds somewhat more to a medium-run cost pressure than does wage inflation. The implications for macroeconomic stability are demonstrated. We also show,as a link between product and labour markets,that employment is related to output as Okun's law states. In comparing linear and non-linear estimates of the wage and price Phillips curves we find furthermore that for some relationships non-linearities are important while not for others. Although overall the non-linear estimates tend to confirm our linear estimates, non-linearities in some relationships of the Phillips curve are important as well. [source] Testing the New Keynesian Phillips Curve Through Vector Autoregressive Models: Results from the Euro Area,OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 1 2008Luca Fanelli Abstract This paper addresses the issue of testing the ,hybrid' New Keynesian Phillips curve (NKPC) through vector autoregressive (VAR) systems and likelihood methods, giving special emphasis to the case where the variables are non-stationary. The idea is to use a VAR for both the inflation rate and the explanatory variable(s) to approximate the dynamics of the system and derive testable restrictions. Attention is focused on the ,inexact' formulation of the NKPC. Empirical results over the period 1971,98 show that the NKPC is far from providing a ,good first approximation' of inflation dynamics in the Euro area. [source] Weak Identification of Forward-looking Models in Monetary Economics,OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 2004Sophocles Mavroeidis Abstract Recently, single-equation estimation by the generalized method of moments (GMM) has become popular in the monetary economics literature, for estimating forward-looking models with rational expectations. We discuss a method for analysing the empirical identification of such models that exploits their dynamic structure and the assumption of rational expectations. This allows us to judge the reliability of the resulting GMM estimation and inference and reveals the potential sources of weak identification. With reference to the New Keynesian Phillips curve of Galí and Gertler [Journal of Monetary Economics (1999) Vol. 44, 195] and the forward-looking Taylor rules of Clarida, Galí and Gertler [Quarterly Journal of Economics (2000) Vol. 115, 147], we demonstrate that the usual ,weak instruments' problem can arise naturally, when the predictable variation in inflation is small relative to unpredictable future shocks (news). Hence, we conclude that those models are less reliably estimated over periods when inflation has been under effective policy control. [source] Strategic Delegation in Monetary UnionsTHE MANCHESTER SCHOOL, Issue 2004V. V. Chari In monetary unions, monetary policy is typically made by delegates of the member countries. This procedure raises the possibility of strategic delegation,that countries may choose the types of delegates to influence outcomes in their favor. We show that without commitment in monetary policy, strategic delegation arises if and only if three conditions are met: shocks affecting individual countries are not perfectly correlated, risk-sharing across countries is imperfect, and the Phillips curve is nonlinear. Moreover, inflation rates are inefficiently high. We argue that ways of solving the commitment problem, including the emphasis on price stability in the agreements constituting the European Union, are especially valuable when strategic delegation is a problem. [source] The Backward,Bending Phillips Curve And The Minimum Unemployment Rate Of Inflation: Wage Adjustment With Opportunistic FirmsTHE MANCHESTER SCHOOL, Issue 1 2003Thomas I. PalleyArticle first published online: 12 FEB 200 This paper presents a theory of the backward,bending Phillips curve. There is aminimum unemployment rate of inflation which offers a policy alternative to the non,accelerating inflation rate of unemployment. Nominal wages are downwardly rigid because workers oppose cuts initiated from within the employment relation. Instead, workers may acceptreal wage adjustments effected by increases in the general price level, a variableoutside individual firms' control. This is why inflation ,greases'labor market adjustment. However, workers resist too rapid a real wage adjustment,and too high an inflation generates wage resistance that cancels the grease effect and increases unemployment. [source] Increased Diversity and Deepened Uncertainty: Policy Challenges in a Zero-Inflation Economy,INTERNATIONAL FINANCE, Issue 3 2007Kiyohiko G. Nishimura The world economy today shows ,great diversity'. There are multiple engines of growth in various regions around the globe. Risks are diversified, as many novel financial products are being introduced and sold to a continuing flow of newcomers to the financial world. This increased diversity seems to deepen uncertainty surrounding monetary policy in two respects. First, coupled with increased competition, it may make prices less responsive to short-run demand changes than before, thus making monetary transmission mechanism less certain. In fact, Japanese IS and Phillips curves seem increasingly uncertain in the past 15 years. Second, we are in transition between one financial structure of little diversification and another of great diversification. In a transition period, information is scarce and rapidly becomes obsolete, posing real challenges to financial stability. I argue that the flexible gradualism, which the Bank has now adopted, is a prudent way to cope with such deepened uncertainty. [source] Identifying the new Keynesian Phillips curveJOURNAL OF APPLIED ECONOMETRICS, Issue 5 2008James M. Nason Phillips curves are central to discussions of inflation dynamics and monetary policy. The hybrid new Keynesian Phillips curve (NKPC) describes how past inflation, expected future inflation, and a measure of real aggregate demand drive the current inflation rate. This paper studies the (potential) weak identification of the NKPC under Generalized Method of Moments and traces this syndrome to a lack of higher-order dynamics in exogenous variables. We employ analytic methods to understand the economics of the NKPC identification problem in the canonical three-equation, new Keynesian model. We revisit the empirical evidence for the USA, the UK, and Canada by constructing tests and confidence intervals based on the Anderson and Rubin (1949) statistic, which is robust to weak identification. We also apply the Guggenberger and Smith (2008) LM test to the underlying NKPC pricing parameters. Both tests yield little evidence of forward-looking inflation dynamics. Copyright © 2008 John Wiley & Sons, Ltd. [source] TESTING WAGE AND PRICE PHILLIPS CURVES FOR THE UNITED STATESMETROECONOMICA, Issue 4 2007Peter Flaschel ABSTRACT This paper demonstrates how the labour and product markets interact in determining as outcome a generalized reduced-form price Phillips curve. For the labour market we consider a wage Phillips curve and for the product market a price Phillips curve. We estimate separately the wage and price Phillips curves for the USA, using ordinary least squares, non-parametric estimation and three-stage least squares techniques. The finding is that wages are always more flexible than prices with respect to their respective demand pressure and that price inflation responds somewhat more to a medium-run cost pressure than does wage inflation. The implications for macroeconomic stability are demonstrated. We also show,as a link between product and labour markets,that employment is related to output as Okun's law states. In comparing linear and non-linear estimates of the wage and price Phillips curves we find furthermore that for some relationships non-linearities are important while not for others. Although overall the non-linear estimates tend to confirm our linear estimates, non-linearities in some relationships of the Phillips curve are important as well. [source] Supply, Factor Shares and Inflation Persistence: Re-examining Euro-area New-Keynesian Phillips Curves,OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 2004Peter McAdam Abstract Using euro-area data, we re-examine the empirical success of New-Keynesian Phillips curves (NKPCs). We re-estimate with a suitably specified optimizing supply side (which attempts to treat non-stationarity in factor income shares and mark-ups) that allows us to derive estimates of technology parameters, marginal costs and ,price gaps'. Our resulting estimates of the euro-area NKPCs are robust, provide reasonable estimates for fixed-price durations and discount rates and embody plausible dynamic properties. Our method for identifying the underlying determinants of NKPCs has general applicability to a wide set of countries as well as of use for sectoral studies. [source] Does monetary policy transparency reduce disinflation costs?THE MANCHESTER SCHOOL, Issue 5 2003Georgios Chortareas We examine the relationship between central bank transparency and the costs of disinflation. We provide a model where disinflation efforts imply a higher sacrifice ratio when the public is not fully convinced about the central bank's resolve to reduce inflation and show that information dissemination by the central bank can remedy this problem. To assess the empirical implications we estimate sacrifice ratios based on individual estimates of Phillips curves in 21 OECD economies. Using transparency indices pertaining to both the detail with which central banks publish forecasts and the means by which policy decisions are explained, we find that a higher degree of central bank transparency is associated with lower sacrifice ratios. This result is robust to alternative estimation methods and periods considered. [source] | ||||||||||||||||||||||