Long-run Inflation-Unemployment Dynamics: The Spanish Phillips Curve and Economic Policy

This paper takes a new look at the long-run dynamics of inflation and unemployment in response to permanent changes in the growth rate of the money supply. We examine the Phillips curve from the perspective of what we call "frictional growth", i.e. the interaction between money growth and nominal frictions. After presenting theoretical models of this phenomenon, we construct an empirical model of the Spanish economy and, in this context, we evaluate the long-run inflation-unemployment trade for Spain and examine how recent policy changes have afected it.

International Evidence on the New Keynesian Phillips Curve Using Aggregate and Disaggregate Data

We present a unique empirical analysis of the properties of the New Keynesian Phillips Curve using an international dataset of aggregate and disaggregate sectoral in ation. Our results from panel time-series estimation clearly indicate that sectoral heterogeneity has important consequences for aggregate in ation behaviour. Heterogeneity helps to explain the overestimation of in ation persistence and underestimation of the role of marginal costs in empirical investigations of the NKPC that use aggregate data. We nd that combining disaggregate information with heterogeneous-consistent estimation techniques helps to reconcile, to a large extent, the NKPC with the data.

Inflation dynamics and the New Keynesian Phillips curve in EU-4

The paper seeks to shed light on inflation dynamics of four new EU member states: the Czech Republic, Hungary, Poland and Slovakia. To this end, the New Keynesian Phillips curve augmented for open economies is estimated and additional statistical tests applied. We find the following. (1) The claim of New Keynesians that the real marginal cost is the main inflation-forcing variable is fragile. (2) Inflation seems to be driven by external factors. (3) Although inflation holds a forward-looking component, the backward-looking component is substantial. An intuitive explanation for higher inflation persistence may be rather adaptive than rational price setting of local firms.

The return of the wage Phillips curve

The standard New Keynesian model with staggered wage settingis shown to imply a simple dynamic relation between wage inflationand unemployment. Under some assumptions, that relation takes aform similar to that found in empirical wage equations-starting fromPhillips' (1958) original work-and may thus be viewed as providingsome theoretical foundations to the latter. The structural wage equation derived here is shown to account reasonably well for the comovement of wage inflation and the unemployment rate in the U.S. economy, even under the strong assumption of a constant natural rate ofunemployment.

Comment to "Weak instruments robust tests in GMM and the New Keynesian Phillips curve" by Frank Kleibergen and Sophocles Mavroeidis

I discuss the identifiability of a structural New Keynesian Phillips curve when it is embedded in a small scale dynamic stochastic general equilibrium model. Identification problems emerge because not all the structural parameters are recoverable from the semi-structural ones and because the objective functions I consider are poorly behaved. The solution and the moment mappings are responsible for the problems.

Inflation dynamics and the New Keynesian Phillips Curve: an identification robust econometric analysis

In this paper, we use identification-robust methods to assess the empirical adequacy of a New Keynesian Phillips Curve (NKPC) equation. We focus on the Gali and Gertler’s (1999) specification, on both U.S. and Canadian data. Two variants of the model are studied: one based on a rationalexpectations assumption, and a modification to the latter which consists in using survey data on inflation expectations. The results based on these two specifications exhibit sharp differences concerning: (i) identification difficulties, (ii) backward-looking behavior, and (ii) the frequency of price adjustments. Overall, we find that there is some support for the hybrid NKPC for the U.S., whereas the model is not suited to Canada. Our findings underscore the need for employing identificationrobust inference methods in the estimation of expectations-based dynamic macroeconomic relations.

The small open-economy New Keynesian Phillips Curve: empirical evidence and implied inflation dynamics

In this paper we apply GMM estimation to assess the relevance of domestic versus external determinants of CPI inflation dynamics in a sample of OECD countries typically classified as open economies. The analysis is based on a variant of the small open-economy New Keynesian Phillips Curve derived in Galí and Monacelli (Rev Econ Stud 72:707–734, 2005), where the novel feature is that expectations about fluctuations in the terms of trade enter explicitly. For most countries in our sample the expected relative change in the terms of trade emerges as the more relevant inflation driver than the contemporaneous domestic output gap.

Asymmetric output gap effects in Phillips Curve and mark-up pricing models: evidence for the US and the UK

A number of studies have found an asymmetric response of consumer price index inflation to the output gap in the US in simple Phillips curve models. We consider whether there are similar asymmetries in mark-up pricing models, that is, whether the mark-up over producers' costs also depends upon the sign of the (adjusted) output gap. The robustness of our findings to the price series is assessed, and also whether price-output responses in the UK are asymmetric.

The Long-Run Phillips Curve: A Structural VAR Investigation

Both cointegration methods, and non-cointegrated structural VARs identified based on either long-run restrictions, or a combination of long-run and sign restrictions, are used in order to explore the long-run trade-off between inflation and the unemployment rate in the post-WWII U.S., U.K., Euro area, Canada, and Australia. Overall, neither approach produces clear evidence of a non-vertical trade-off. The extent of uncertainty surrounding the estimates is however substantial, thus implying that a researcher holding alternative priors about what a reasonable slope of the long-run trade-off might be will likely not see her views falsified

Using a CGE Model to Identify the Policy Trade-Off between Unemployment and Inflation: The Efficient Phillips Curve

This paper provides a new reading of a classical economic relation: the short-run Phillips curve. Our point is that, when dealing with inflation and unemployment, policy-making can be understood as a multicriteria decisionmaking problem. Hence, we use so-called multiobjective programming in connection with a computable general equilibrium (CGE) model to determine the combinations of policy instruments that provide efficient combinations of inflation and unemployment. This approach results in an alternative version of the Phillips curve labelled as efficient Phillips curve. Our aim is to present an application of CGE models to a new area of research that can be especially useful when addressing policy exercises with real data. We apply our methodological proposal within a particular regional economy, Andalusia, in the south of Spain. This tool can give some keys for policy advice and policy implementation in the fight against unemployment and inflation.

A curva de Phillips no Brasil e a política de metas de inflação : uma análise da evolução do trade-off durante o período 1980-2010

Diante de uma discussão não consensual a respeito da existência ou não de um trade-off entre inflação e desemprego (curva de Phillips), esta dissertação analisa a evolução desta relação na economia brasileira no período 1980-2010 através de duas análises diferentes: A primeira é uma análise considerada estática, realizada com a utilização de uma regressão linear simples. A segunda consiste em uma análise dinâmica, onde é utilizada uma regressão com coeficientes time-varying, com a estimação dos coeficientes sendo realizada com a aplicação do filtro de Kalman. Os resultados econométricos mostraram que a relação entre inflação e desemprego de fato se alterou ao longo do período analisado: A curva de Phillips se torna horizontal após o Plano Real e fica levemente positiva após o Regime de Metas de Inflação. Sendo assim, este trabalho basicamente se divide em duas partes: A primeira consiste de uma contextualização teórica da relação entre inflação e desemprego e do regime de metas de inflação. A segunda parte traz a análise econométrica, onde é descrita a evolução do trade-off. Diante dos resultados encontrados, são apresentadas suas possíveis causas e é realizada uma análise qualitativa da atual política monetária praticada pelo Banco Central do Brasil.

Estimating Phillips Curves in Turbulent Times using the ECB’s Survey of Professional Forecasters

This paper uses forecasts from the European Central Bank's Survey of Professional Forecasters to investigate the relationship between inflation and inflation expectations in the euro area. We use theoretical structures based on the New Keynesian and Neoclassical Phillips curves to inform our empirical work. Given the relatively short data span of the Survey of Professional Forecasters and the need to control for many explanatory variables, we use dynamic model averaging in order to ensure a parsimonious econometric speci cation. We use both regression-based and VAR-based methods. We find no support for the backward looking behavior embedded in the Neo-classical Phillips curve. Much more support is found for the forward looking behavior of the New Keynesian Phillips curve, but most of this support is found after the beginning of the financial crisis.

Estimating United States Phillips Curves With Expectations Consistent With The Statistical Process Of Inflation

‘Modern’ Phillips curve theories predict inflation is an integrated, or near integrated, process. However, inflation appears bounded above and below in developed economies and so cannot be ‘truly’ integrated and more likely stationary around a shifting mean. If agents believe inflation is integrated as in the ‘modern’ theories then they are making systematic errors concerning the statistical process of inflation. An alternative theory of the Phillips curve is developed that is consistent with the ‘true’ statistical process of inflation. It is demonstrated that United States inflation data is consistent with the alternative theory but not with the existing ‘modern’ theories.