The long-run Phillips curve and non-stationary inflation

Modern theories of inflation incorporate a vertical long-run Phillips curve and are usually estimated using techniques that ignore the non-stationary behaviour of inflation. Consequently, the estimates obtained are imprecise and unable to test the veracity of a vertical long-run Phillips curve. We estimate a Phillips curve model taking into account the non-stationary properties in inflation and identify a small but significant positive relationship between inflation and unemployment. The results also provide some evidence that the trade-off between inflation and the rate of unemployment in the short-run worsens as the mean rate of inflation increases.     

The New Keynesian Phillips curve and the role of expectations: Evidence from the CESifo World Economic Survey

We provide evidence on the fit of the hybrid New Keynesian Phillips curve for selected Euro zone countries, the US and the UK. Instead of imposing rational expectations and estimating the Phillips curve by the Generalized Method of Moments, we use direct measures of inflation expectations from the CESifo World Economic Survey. Our main findings are as follows: (i) The use of survey data gives empirical results, which are more reliable than those obtained from the GMM approach. (ii) The purely forward-looking Phillips curve can be rejected in favor of the hybrid New Keynesian Phillips curve. (iii) The estimated coefficients on past inflation are higher when using survey expectations than when using the rational expectations GMM approach. (iv) It remains unclear whether real unit labor costs or a measure of the output gap should be used as a proxy for real marginal costs. (v) Theory-based restrictions lead to an improvement of the empirical results.     

The shape of the Phillips curve: the case of Indonesia

It is recognized that the effectiveness of monetary policy in the control of inflation depends critically on the relationship between inflation and the output gap. During booms, inflation is highly sensitive to monetary influences, but during recessions this influence is considerably muted. However, econometric investigation of this phenomenon has mostly focussed on the developed economies. In this article, the shape of the Phillips curve is investigated for Indonesia. Evidence is found of significant nonlinearities in the inflation–output relationship for Indonesia and it is argued that this relationship is best modelled by the capacity-constraint (L-shape) model.     

Product market regulation,trend inflation and inflation dynamics in the new Keynesian Phillips curve

In this empirical paper, we take a close look at the impact of the observed decline in the product market regulation, and hence in the barriers to entry and in impediments to competition, on inflation dynamics since the early 1980s.We use an enlarged new Keynesian Phillips curve (NKPC) allowing for entry of firms and increasing competitive pressures with the number of firms and non zero trend inflation.Using OECD indicators on product market regulations, characterized by persistent fluctuations, and taking into account the non stationary properties of the inflation process, we investigate the empirical relevance of this NKPC for inflation dynamics in the US and France, assuming VAR expectations. The results point out that product market regulation is a good candidate as an exogenous structural source of the observed persistence in inflation for the past thirty years in both the US and France.     

A simple test of the New Keynesian Phillips Curve

We propose a way to test the New Keynesian Phillips Curve without having to estimate its structural parameters. We find that it does not exist as a combination of the structural parameters consistent with the US data. This might be due to the failure of the joint hypothesis of rational expectations.     

Phillips curve in US: New insights in time and frequency

The paper explores the co-movement between unemployment and inflation rates in US by using a battery of wavelet tools. The dataset covers the period 1945Q1–2017Q4, having quarterly frequency.The main findings reveal a not stable Phillips curve in US, depending on economic context, seasonality and time-persistence. The Phillips curve is not validated during economic turbulences, while it works over expansion economic periods. Even so, the trade-off between unemployment and inflation is unstable under seasonal growth components and time-persistence, running from short- to medium-term. No link between unemployment and inflation is found in the long-term.     

Thought experimentation and the Phillips curve

This paper offers the rationale for presenting a particular type of Phillips curve and develops the dynamic behavior of an economy where such a Phillips curve relation is observed. The specific kind of relation that is explored has similarities with the sticky-information Phillips curve of the Mankiw-Reis framework. Nevertheless, it adds an important dimension: firms need to form expectations about current events on past time periods not because of infrequent optimal updating of information but because producers want to evaluate the possibility of taking advantage of information deficiencies on the consumers’ side. A positive probability of ‘fooling’ consumers with a price above the one imposed by market conditions re-shapes the dynamic relation between the inflation rate and the output gap.     

Nonlinear Phillips curve,NAIRU and monetary policy rules

The US Phillips curve is modeled with a logistic smooth transition autoregression specification that allows various nonlinear shapes. Using this, the paper derives model-consistent estimates of the NAIRU. The NAIRU is defined as the level of unemployment rate that would correspond to a forecast of no inflation changes over the policy horizon. This paper also investigates the implications of nonlinearities in the Phillips curve for deriving optimal monetary policy rules. The optimal policy rule for interest rates and implied sacrifice ratios are found to be nonlinear as well.      

The new Keynesian Phillips curve: endogeneity and misspecification

The wrong or insignificant sign of the forcing variable in the new Keynesian Phillips curve estimations may be a result of the endogeneity of the labour share and misspecification of real marginal cost in the baseline model. We address the misspecification of real marginal cost by formulating a broad measure that features the labour share, output gap and supply shock variables. The endogeneity of the labour share is addressed by using an appropriate lag of the labour share in the Phillips curve. Reduced-form evidence from five developed and five emerging market economies support the empirical validity of the NKPC.     

Macro frictions and theoretical identification of the New Keynesian Phillips curve

I discuss theoretical identification of the New Keynesian Phillips curve, and show that it can be identified with limited information techniques when the data generating process is a New Keynesian model with enough macro frictions or persistent shocks. Monte Carlo experiments illustrate the quantitative relevance of the results.     

Output,Inflation and the New Keynesian Phillips Curve

Explicit modelling of factor markets clarifies two fundamental aspects of the New Keynesian Phillips Curve (NKPC). First, we clarify the relationship between output and marginal cost. Second, for the NKPC in inflation–output space, we identify the key stochastic influences on inflation without recourse to ad hoc cost or excess demand shocks. The econometric implementation of this clarified NKPC, which evolves strictly according news on the stream of future marginal costs, allows us jointly to derive inflation as a forecast of future variables. Our approach clarifies the empirical successes and failures of the NKPC and allows us to provide new aggregate evidence on the degree of price rigidity in the UK economy.     

Thai inflation dynamics: A view from disaggregated price data

This paper utilizes disaggregated prices at the micro level to examine the patterns of price adjustment in Thailand. Among the key stylized facts, we found that the frequency of price changes are generally low, prices decreases are common, the size of price changes are large relative to the inflation rate, and there is significant dispersion in price levels as well as in the synchronicity of price changes across regions. To better understand the underlying sources of heterogeneous price dynamics, we conduct dynamic factor analyses and highlight the importance of relative price changes in driving the bulk of overall CPI movements. This suggests an important role of non-monetary factors in driving inflation. A significant Phillips curve relation is detected once idiosyncratic price changes are filtered out, reinforcing the importance of disaggregated analysis of price trends in the conduct of monetary policy.     

通货膨胀实时预测及菲利普斯曲线的适用性

本文从实时分析的视角,基于多种退势方法的产出缺口最终估计、准最终估计和实时估计序列,分别构建了四类预测模型对我国通货膨胀率进行预测,分析了产出缺口修正效应和滞后阶数变化效应对通胀预测的影响,并进一步考察了产出缺口在通胀预测中的作用及菲利普斯曲线在通胀预测中的适用性。研究结论表明,通胀率的实时预测效果要明显比基于最终数据的差,其中滞后阶数变化效应对实时预测精度的影响大于产出缺口修正效应;尤为重要的是,尽管在最终数据的预测分析中,产出缺口的引入能够提高通胀率的预测精度,但是在实时预测中,产出缺口没有提供有价值的信息,因此"产出—通胀"型菲利普斯曲线在我国通胀实时预测中并不适用。     

Analysis of wage flexibility across the Euro Area: evidence from the process of convergence of the labour income share ratio

This article analyses wage flexibility as a factor in the unemployment rate across 12 Euro Area countries. We use extensive evidence pertaining to the countercyclical behaviour of the labour income share ratio to estimate its equilibrium value in the long run. This measure is calculated using a hybrid New Keynesian Phillips curve. Additionally, by using spatial econometrics, we can incorporate into the study the interdependence in the inflation among the countries. As a result, we identify countries that might see an improvement in their employment rates by improving their wage flexibility. We also identify countries with high unemployment that is not a consequence of a lack of wage flexibility.     

Estimating potential output and the output gap for the euro area: a model-based production function approach

This paper provides an analysis of multivariate unobserved components models for the estimation of potential output and the output gap in the euro area. Bivariate models of output and inflation and multivariate model-based implementations of the production function approach are considered; according to the latter potential output is derived from the permanent components of the factors of production consistent with stable inflation, whereas the output gap results from the combination of the transitory components. This approach allows to measure the contribution of the various factors of production to potential output growth, and to assess the reliability of the output gap estimates. Various alternative statistical specifications for the separation of trend and cycle are considered entertaining different economic hypotheses. The paper also provides an assessment of the reliability of the alternative output gap estimates and analyses their predictive validity by means of a rolling forecast exercise that provides an evaluation of the capability to forecast future inflation. A preliminary version of this paper appeared as EUI working paper ECO2002/09 and was presented at the European Central Bank, the European University Institute, the Growth and Business Cycles in Theory and Practice conference, Manchester UK, 20–21 June 2002, the Common Features in Rio conference, Rio de Janeiro, 29–31 July 2002. We thank the participants, Michael Artis, Gerard Korteweg, Geoff Kenny, Neale Kennedy, Manuel da Mota Freitas Martins, Gerard Ruenstler, and three anonymous Referees for useful discussions and valuable comments. The paper was largely written while the first author was acting as consultant for the ECB. The views expressed in it do not necessarily reflect those of the ECB. All correspondence to Alberto Musso.     

A note on internal and external reference in efficiency wage models

According to Bewley, a workers’ morale depends on being treated fairly within firms. This implies that the internal comparison of the own wage with wages paid to other workers within the firm affects individual effort determination. By contrast, the standard efficiency wage models only consider a comparison of the own wage with external income opportunities as the only determinant for individual effort. We provide a simple efficiency wage framework in which both the internal and external perspectives can affect individual effort determination. Our framework suggests that the internal reference is essential for the existence of real wage rigidity while the external reference ensures an upward-sloping wage-setting curve.      

实证分析:我国菲利普斯曲线失灵与应对财政政策就业效应

1998年至今我国经济呈现出GDP高速增长的态势,但是这种经济的高速增长伴随着的是宏观经济运行的两大不稳定因素,一是物价持续上涨,二是就业形势日益严峻,宏观经济呈现出菲利普斯曲线失灵的特点。本文在运用GDP增长率、失业率和通货膨胀率等相关指标来论证、描述和解析我国菲利普斯曲线失灵现象的基础上,主要对近几年我国政府在应对菲利普斯曲线失灵时所采取的相关反失业财政政策及其就业效应进行了分析,从而为我国政府今后如何继续完善和实施治理失业的财政政策起到一个抛砖引玉的作用。     

Alternative indicators for predicting the probability of declining inflation: evidence from the US

The performance of inflation indicators for predicting the probabilityof inflation falling inside constant and moving targets is consideredwith a probit model using US data. Given the Federal ReserveSystem's emphasis on achieving price stability, particular attentionis given to the target that future inflation will be below recentinflation. In contrast with earlier years, the unemploymentand capacity utilisation rates do not perform well in forecastingthe direction of inflation in the mid and late 1990s. We suggestthat extending the Keynesian Phillips curve analysis to considerchanges in labour market conditions, technological advance andworker skills, and openness will increase understanding of theseissues.     

菲利普斯曲线与中国货币政策目标选择

本文概述了菲利普斯曲线的演进过程及西方经济学家关于菲利普斯曲线的竞争，在此基础上对论了中国菲利普斯曲线的变化及现阶段的货币政策选择。