The shape of the Phillips curve: the case of Indonesia |
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| Authors: | Rizki E Wimanda Paul M Turner Maximilian J B Hall |
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| Institution: | 1. Monetary Policy and Economic Research Department , Bank Indonesia , Jakarta , Indonesia rizki@bi.go.id;3. School of Business and Economics, Loughborough University , Loughborough LE11 3TU , UK |
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| Abstract: | 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. |
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| Keywords: | Phillips curve nonlinear Indonesia |
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