A Bounded Model of Time Variation in Trend Inflation, Nairu and the Phillips Curve

Chan, Joshua C. C.; Koop, Gary; Potter, Simon

doi:10.1002/jae.2442

Cited by 54 publications

(71 citation statements)

References 27 publications

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“…16 One of the most important versions in modern macroeconomics is the so-called New Keynesian Phillips curve; see, for example, Galí and Gertler (1999) and Rudd and Whelan (2005). Recent empirical literature taking a less structural appoach and relying on various techniques from time series economectrics includes Svensson (2015), Busetti and Caivano (2016), Chan et al (2016) and Knotek and Zaman (2017).…”

Section: Other Measures Of Resource Utilizationmentioning

confidence: 99%

“…The models are estimated under different assumptions concerning the dynamics and covariance matrix. As noted by a growing literature, time variation in both dynamics and volatility appears to be important features of macroeconomic relationships; see, for example, Cogley and Sargent (2005), Koop et al (2009), Franta et al (2014), Chan et al (2016), Knotek and Zaman (2017) and Akram and Mumtaz (2019). We therefore estimate models with time-varying parameters and/or stochastic volatility and compare these models to specifications with constant parameters and/or covariance matrix.…”

Section: Introductionmentioning

confidence: 99%

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A note on the stability of the Swedish Phillips curve

Karlsson

Österholm

2019

Empir Econ

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We use Bayesian techniques to estimate bivariate VAR models for Swedish unemployment rate and inflation. Employing quarterly data from 1995Q1 to 2018Q3 and new tools for model selection, we compare models with time-varying parameters and/or stochastic volatility to specifications with constant parameters and/or covariance matrix. The evidence in favour of a stable dynamic relationship between the unemployment rate and inflation is mixed. Model selection based on marginal likelihood calculations indicates that the relation is time varying, whereas the use of the deviance information criterion suggests that it is constant over time; we do, however, note consistent evidence in favour of stochastic volatility. An out-of-sample forecast exercise is also conducted, but similarly provides mixed evidence regarding which model to favour. Importantly though, even if time-varying parameters are allowed for, our results do not suggest that the Phillips curve has been flatter in more recent years. This finding thereby questions the explanation that a flatter Phillips curve is the cause of the low inflation that Sweden has experienced in recent year. Keywords Inflation • Unemployment • Time-varying parameters • Stochastic volatility JEL Classification C11 • C32 • E32 We are grateful to Mikael Apel, Paola Di Casola, Henry Ohlsson, two anonymous referees, the editor, the associate editor and seminar participants at the Ministry of Finance (in Sweden), the 6th Swedish National Conference in Economics and the 10th Nordic Econometric Meeting for valuable comments. Rafael Barros De Rezende kindly provided data on the shadow rate and Joshua Chan generously shared Matlab code.

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Section: Other Measures Of Resource Utilizationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

A note on the stability of the Swedish Phillips curve

Karlsson

Österholm

2019

Empir Econ

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“…We use Bayesian methods to estimate all the unknown parameters of our models, including latent variables such as trend inflation. The Markov chain Monte Carlo (MCMC) algorithm used for estimation is similar to that used in previous work (e.g., Chan, Koop, and Potter ) and, hence, we say no more of it here. The priors used in this paper are informative but not dogmatically so.…”

Section: Econometric Modeling Of Trend Inflationmentioning

confidence: 99%

A New Model of Inflation, Trend Inflation, and Long‐Run Inflation Expectations

Chan¹,

Clark²,

Koop³

2018

J of Money Credit Banking

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This paper develops a bivariate model of inflation and a survey‐based long‐run forecast of inflation that allows for the estimation of the link between trend inflation and the long‐run forecast. Thus, our model allows for the possibilities that long‐run forecasts taken from surveys can be equated with trend inflation, that the two are completely unrelated, or anything in between. Using a variety of inflation measures and survey‐based forecasts for several countries, we find that long‐run forecasts can provide substantial help in refining estimates and fitting and forecasting inflation. It is less helpful to simply equate trend inflation with the long‐run forecasts.

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“…This paper aims to estimate the Brazilian NAIRU (Non-Accelerating Inflation Rate of Unemployment) using a bivariate unobserved components model for inflation and unemployment as proposed by Chan, Koop and Potter (2015). This model differs from the existing literature by considering bounded random walks for the latent variables.…”

Section: Introductionmentioning

confidence: 99%

Nairu, Inflação e Curva de Phillips no Brasil: novas evidências a partir de um modelo tempo-variante

Palma

Ferreira

2017

Estud. Econ.

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ResumoO objetivo do presente trabalho é estimar a NAIRU (Non-Accelerating Inflation Rate of Unemployment) para o Brasil, utilizando um modelo bivariado de componentes não observados conforme proposto por Chan, Koop e Potter (2015), que difere da literatura existente por considerar passeios aleatórios restritos para as variáveis não observadas. As variáveis latentes do modelo são a NAIRU, tendência inflacionária, persistência da inflação e inclinação da Curva de Phillips. Os resultados obtidos apontam para uma tendência de queda da NAIRU, que tem sido revertida no período recente. Além disso, o hiato do desemprego foi predominantemente positivo até 2010, fato consistente com a diminuição da inflação e tem sido predominantemente negativo no período recente, o que implica em aumento da inflação. Tal comportamento é consistente com a trajetória observada da inflação no período. Dessa forma, o presente trabalho contribui com a literatura empírica a respeito da NAIRU no Brasil, fornecendo novas estimativas para o período recente. Dada a natureza não observável dessa variável, o aumento da literatura pode aumentar o grau de confiabilidade dessas estimativas. Palavras-Chave NAIRU. Curva de Phillips. Modelo tempo-variante. AbstractThis paper aims to estimate the Brazilian NAIRU (Non-Accelerating Inflation Rate of Unemployment) using a bivariate unobserved components model for inflation and unemployment as proposed by Chan, Koop and Potter (2015). This model differs from the existing literature by considering bounded random walks for the latent variables. The latent variables of model are NAIRU, trend inflation, inflation persistence and the slope of the Phillips Curve. The results indicate a declining trend for the NAIRU, which has been reversed in recent period. In addition, the unemployment gap was predominantly positive until 2010, which is consistent with the decrease in inflation and has been predominantly negative in recent years, wich implies increasing inflation. This is consistent with the observed behavior of inflation in the period. Thus, this paper contributes

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A Bounded Model of Time Variation in Trend Inflation, Nairu and the Phillips Curve

Cited by 54 publications

References 27 publications

A note on the stability of the Swedish Phillips curve

A note on the stability of the Swedish Phillips curve

A New Model of Inflation, Trend Inflation, and Long‐Run Inflation Expectations

Nairu, Inflação e Curva de Phillips no Brasil: novas evidências a partir de um modelo tempo-variante

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