The New Keynesian Phillips curve in Europe: does it fit or does it fail?

The canonical New Keynesian Phillips curve specifies inflation as the present-value of future real marginal costs. This paper exploits projections of future real marginal costs generated by VAR models to assess the model’s ability to match the behavior of actual inflation in the Euro area. The model fits the data well at first sight. A set of bias-corrected bootstrapped confidence bands, however, reveals that this result is consistent with both a well fitting and a failing model. These findings also hold for the hybrid version of the Phillips curve.     

Does immigration affect the Phillips curve? Some evidence for Spain

The Phillips curve has flattened in Spain over 1995-2006: Unemployment has fallen by 15 percentage points, with roughly constant inflation. This change has been much more pronounced than elsewhere. We argue that this stems from the immigration boom in Spain over this period. We show that the New Keynesian Phillips curve is shifted by immigration if natives’ and immigrants’ labor supply elasticities and bargaining power differ. Estimation of this curve for Spain indicates that the fall in unemployment since 1995 would have led to an annual increase in inflation of 2.5 percentage points if it had not been largely offset by immigration.     

Is the Hybrid New Keynesian Phillips Curve Stable? Evidence from Some Emerging Economies

This paper primarily examines whether the ‘hybrid new Keynesian Phillips curve’ (HNKPC) holds for four important emerging economics viz., Brazil, Russia, India and South Africa. This has been done after testing for the structural stability of this relationship. Econometric issues like the test of unit roots in presence of a structural break and estimation of output gap have also been done appropriately. Our findings suggest that the HNKPC is not stable for all the four countries. However, the analysis based on the two sub-periods thus formed clearly shows mixed evidence in respect of holding of this relationship.

     

Do professional forecasters behave as if they believed in the New Keynesian Phillips Curve for the euro area?

This paper finds that participants in the European Central Bank’s Survey of Professional Forecasters have submitted forecasts that are consistent with a (mostly forward-looking) empirical version of the New Keynesian Phillips Curve for the euro area. The estimation technique takes advantage of the panel nature of the Survey of Professional Forecasters’ dataset to exploit both its time series and cross-section dimensions, and to control for unobservable individual heterogeneity across forecasters. The estimation results suggest that euro-area inflation forecasts have reacted less to unemployment forecasts after the start of the financial crisis but another cost measure (energy inflation) remains significant. This finding is consistent with a flatter Phillips Curve in the euro area after 2007. However, the reasons suggested by the International Monetary Fund for this finding, namely a better anchoring of inflation expectations and increases in structural unemployment do not seem to find support in the survey data. Instead, the expectations for compensation per employee submitted by professional forecasters are consistent with the existence of downward real-wage rigidities in euro-area labour markets.     

A New Keynesian IS curve for Australia: is it forward looking or backward looking?

This article estimates the forward looking, backward looking and an extended version of the New Keynesian IS curve for Australia. The validity of these models is investigated by imposing the constraint on real rate of interest as well as when the constraint is relaxed. Two measures of output gap, namely GAP1 (constructed using the unobserved components approach) and GAP2 (constructed using a quadratic trend) are utilized. Our results suggest that the baseline backward looking and forward looking models are overwhelmingly rejected by the data. This evidence strongly supports the extended backward looking model (with GAP2) being relevant for monetary policy analysis.     

Is the slope of the Phillips curve time-varying? Evidence from unobserved components models

This paper formally tests for time variation in the slope of the Phillips curve using a variety of measures of inflation expectations and real economic slack. We find that time variation in the slope of the Phillips curve depends on the measure of inflation expectations rather than the measure of real economic slack. We find strong evidence in support of the time-varying slopes of the Phillips curve with different measures of inflation expectations. Thus, we conclude that the slope of the Phillips curve is time-varying.     

Is the US Phillips curve stable? Evidence from Bayesian vector autoregressions*

It has been claimed that the fall in US inflation during the Great Recession was surprisingly small. One possible explanation for this is that the Phillips curve is unstable and that its slope was lower around the Great Recession. We investigate the importance of time-varying parameters using Bayesian vector autoregressions for inflation and unemployment. We find support for time variation in the inflation equation and an unstable Phillips curve that was somewhat flatter between 2005 and 2013. However, conditional forecasts mostly suggest that inflation was not unexpectedly high around the Great Recession, which puts the claim of a “missing disinflation” into question.     

What drives inflation in New Keynesian models?

This paper estimates variants of a small-scale New Keynesian model using observations on inflation, inflation expectations and nominal interest rates. We ask whether those variables alone can tell us something about the time series properties of real marginal costs.     

Domestic and global output gaps as inflation drivers: What does the Phillips curve tell?

We study how domestic and global output gaps affect CPI inflation. We use a New-Keynesian Phillips curve framework which controls for non-linear exchange rate movements for a panel of 26 advanced and 22 emerging economies covering the 1994Q1−2017Q4 period. We find that both global and domestic output gaps are significant drivers of inflation both in the pre-crisis (1994–2008) and post-crisis (2008–2017) periods. Furthermore, after the crisis, in advanced economies the effect of the domestic output gap declines, while in emerging economies the effect of the global output gap declines. Our results suggest that emerging and advanced economies have become more similar to each other in terms of output gaps as inflation drivers. The paper demonstrates the usefulness of the New Keynesian Phillips curve in identifying the impact of global and domestic output gaps on inflation.     

Is the Phillips Curve Valid in China?

Is the “non-existence” of the Phillips curve in China a truth or just an illusion due to the deficiency of data? Should policy analysis follow the light of New-Keynesian or New-classical economics? These questions require empirical work on the Phillips curve, which has long been limited in China due to an inaccurate unemployment rate and unreliable estimated output gap. Instead of the insignificant or self-contradicting results in previous work, this paper puts forward a significant estimation, creatively using the vacancy-jobseeker ratio instead of the unemployment rate. It is suggested that a robust Phillips curve cannot be ignored and New-Keynesian economics should be employed in policy analysis in the short run.     

Prospects for inflation in a high pressure economy: Is the Phillips curve dead or is it just hibernating?

As the US labor market has tightened beyond full employment with relatively little evidence of inflation pressure, observers are increasingly inclined to declare the demise of the Phillips curve, that is, the flattening of its slope to zero. This paper reviews a substantial range of empirical evidence on this point, by assessing the performance of the conventional expectations-augmented Phillips curve for both prices and wages, based on both historical macro or national level data and panel data for states and MSAs (cities). National data going back to the 1950s and 60s yield strong evidence of negative slopes and significant nonlinearity in those slopes, with slopes much steeper in tight labor markets than in easy labor markets. This evidence of both slope and nonlinearity weakens dramatically based on macro data since the 1980s for the price Phillips curve, but not the wage Phillips curve. However, the endogeneity of monetary policy and the lack of variation of the unemployment gap, which has few episodes of being substantially below zero in this sample period, makes the price Phillips curve estimates from this period less reliable. At the same time, state level and MSA level data since the 1980s yield significant evidence of both negative slope and nonlinearity in the Phillips curve. The difference between national and city/state results in recent decades can be explained by the success that monetary policy has had in quelling inflation and anchoring inflation expectations since the 1980s. We also review the experience of the 1960s, the last time inflation expectations became unanchored, and observe both parallels and differences with today. Our analysis suggests that reports of the death of the Phillips curve may be greatly exaggerated.     

Can the Phillips Curve Explain Inflation over the Past Half-Century?

International Advances in Economic Research - Standard Phillips curve models of price inflation suggest that the United States should have experienced an episode of deflation during the Great...     

Improved output gaps with financial cycle information? An application to G7 countries’ new Keynesian Phillips curves

In search for more robust cyclical imbalance indicators, recent research has highlighted the interactions between business and financial cycles. Output gap formulations increasingly take imbalances of the financial cycle into account, postulating finance-neutral output gaps (FNGAPs). To test their increased explanatory power in econometric models, we compare FNGAPs to univariate output gaps in their ability to explain inflation dynamics in hybrid new Keynesian Phillips curves. Results indicate FNGAPs to exercise (dis)inflationary pressure, but not to outperform traditional output gaps. Nonetheless, they have become increasingly significant in the course of the 2007/08 Global Financial Crisis.     

Does the educational management model matter? New evidence from a quasiexperimental approach

A growing literature has appeared in the last 2 decades with the aim to explore if the way in which publicly funded private schools are managed (a ver     

Does the digital divide across countries lead to convergence? New international evidence

We examine the convergence of information and communication technologies (ICT) among 47 developed and emerging countries using annual data from 2000 to 2012. We construct an ICT development index using a principal component analysis. The results, based on a dynamic panel data model, reveal a divergence in ICT development. This study identifies two factors that drive a country's digitalization divergence level: the growth of per capita income and the ratio of urban to rural population. In addition, ICT divergence is higher in emerging countries than in developed countries.     

Are the Laffer curve and the green paradox mutually exclusive?

In this paper, we study the relationship between the Laffer curve and the green paradox in the context of a Ramsey model with endogenous labor supply in which pollution increases consumer demand (through a compensation effect). We find that—in the long run—the conditions under which a Laffer curve and a green paradox emerge are mutually exclusive. Indeed, the Laffer curve exists under a weak compensation effect, while the green paradox requires a strong effect. Also, we find that, in the short run, limit cycles may arise in the presence of a Laffer curve, while they never occur under a green paradox.