The Phillips Curve at 60: time for time and frequency

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Title: The Phillips Curve at 60: time for time and frequency
ISBN: 978-952-323-280-8
Author: Aguiar-Conraria, Luís ; Martins, Manuel M.F. ; Soares, Maria Joana
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2019
Series number: 12/2019
Year of publication: 2019
Publication date: 12.7.2019
Pages: 41
Subject (yso): inflaatio; työttömyys; suhdannevaihtelut; odotukset
Keywords: Phillipsin käyrä
JEL: C49; E24; E32
Other keywords: Phillips Curve; Inflation; Unemployment; Business Cycles; Continuous Wavelet Transform; Partial Wavelet Gain
Abstract: We estimate the U.S. New Keynesian Phillips Curve in the time-frequency domain with continuous wavelet tools, to provide an integrated answer to the three most controversial issues on the Phillips Curve. (1) Has the short-run tradeoff been stable? (2) What has been the role of expectations? (3)Is there a long-run tradeoff? First, we fi nd that the short-run tradeoff is limited to some speci c episodes and short cycles and that there is no evidence of nonlinearities or structural breaks. Second, households expectations captured trend in flation and were anchored until the Great Recession, but not since 2008. Then, inflation over-reacted to expectations at short cycles. Finally, there is no signi cant long-run tradeoff. In the long-run, infl ation is explained by expectations.

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