Asymmetric Effects of Economic Activity on Inflation: Evidence and Policy Implications

Laxton, Douglas; Meredith, Guy; Rose, David

doi:10.2307/3867576

Cited by 109 publications

(104 citation statements)

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“…Barnes and Olivei (2003) included multiple kinks for a range of unemployment rates. Laxton et al (1995) also estimated a piecewise-linear Phillips curve with a kink at the positive output gap.…”

Section: Econometric Specificationmentioning

confidence: 99%

“…Meanwhile, much of the Phillips curve research using regional 1 See for example, Akerlof et al (1996), Clark et al (1996), Laxton et al (1995), Clark and Laxton (1997), Debelle and Laxton (1997), Laxton et al (1999), Tambakis (1999), Turner (1995), Filardo (1998), Schaling (2004), Barnes and Olivei (2003), Huh et al (2009), andFuhrer et al (2012).…”

Section: Introductionmentioning

confidence: 99%

“…While a linear Phillips curve warrants a symmetric monetary policy response with respect to business cycle conditions of excess demand or excess supply, a nonlinear Phillips curve may imply preemptive measures are needed to counter inflation when, for example, the unemployment rate declines below the natural rate. Allowing excess demand conditions to persist may necessitate significant subsequent tightening to curtail inflation, adversely affecting not just actual but also potential output (Laxton et al, 1995;Laxton et al, 1999).…”

Section: Introductionmentioning

confidence: 99%

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A closer look at the Phillips curve using state-level data

Kumar

Orrenius

2016

Journal of Macroeconomics

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Studies that estimate the Phillips curve for the U.S. use mainly national-level data and find mixed evidence of nonlinearity, with some recent studies either rejecting nonlinearity or estimating only modest convexity. In addition, most studies do not make a distinction between the relative impacts of short-term vs. long-term unemployment on wage inflation. Using statelevel data from1982 to 2013, we find strong evidence that the wage-price Phillips curve is nonlinear and convex; declines in the unemployment rate below the average unemployment rate exert significantly higher wage pressure than changes in the unemployment rate above the historical average. We also find that the short-term unemployment rate has a strong relationship with both average and median wage growth, while the long-term unemployment rate appears to only influence median wage growth.

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Section: Econometric Specificationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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A closer look at the Phillips curve using state-level data

Kumar

Orrenius

2016

Journal of Macroeconomics

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“…The NAIRU-and ITRU-indicators can also display a bias, if the impact of unemployment on inflation is asymmetric rather than linear as indicated by recent international evidence (Turner 1995 andLaxton et al 1995). If relatively high levels of unemployment result in only small reductions in inflation whereas relatively low levels of unemployment result in large increases in inflation, the NAIRU-and ITRU-indicators will tend to overestimate the level of structural unemployment.…”

mentioning

confidence: 99%

Structural Unemployment in Denmark

Gersing¹

1997

OECD Economics Department Working Papers

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The paper gives a broad discussion of structural unemployment seen from a Danish perspective. In the Danish Ministry of Finance the level of structural unemployment is estimated using two indicators - NAIRU and ITRU. The two indicators basically reflect variations in unemployment and inflation as measured by the GDP-deflator and are computed using historical simulations with the national macro-econometric model ADAM. The uncertainty related to estimates of the level of structural unemployment calls for a great deal of caution when using such estimates in the framing of economic policy. Estimates of structural unemployment can nevertheless be useful when making forecasts of inflation and assessing the appropriate fiscal stance and - not least - when assessing the effectiveness of labour market policies and the possible need for changes. For the purpose of policy-making it is useful to make clear to what extent structural unemployment can be ascribed to “employability” problems of ... Cet article présente une discussion générale de la question du chômage structurel selon une perspective danoise. Au Ministère des finances du Danemark, le niveau de chômage structurel est mesuré à partir de deux indicateurs : le NAIRU et l’ITRU. Ces deux indicateurs, qui reflètent les liens existant entre le chômage et l’inflation - mesurée par le déflateur du PIB - sont estimés à partir de simulations effectuées sur période historique avec le modèle macro-économique national ADAM. Les incertitudes inhérentes aux estimations du niveau du chômage structurel imposent une très grande prudence lors de l’utilisation de telles estimations pour la définition de la politique économique. Ces estimations du chômage structurel peuvent néanmoins être utiles pour effectuer des prévisions d’inflation, évaluer l’orientation appropriée de la politique budgétaire et, surtout, pour analyser le degré d’efficacité des politiques du marché du travail afin, si nécessaire, de les modifier. Il est ...

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“…Evidence for asymmetries is also provided by Laxton et al (1994), using a pooled estimation technique for the G-7 countries. Such an approach has, however, to rely on the assumption that the inflationary process is generated similarly across the G-7 countries, despite their different institutional frameworks and macroeconomic histories.…”

mentioning

confidence: 99%

Monetary Policy at Price Stability

Edey¹,

Funke²,

Kennedy³

et al. 1995

OECD Economics Department Working Papers

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In this paper policy issues related to the operation of monetary policy in a low inflation environment are discussed. The successful reduction of inflation rates in a number of OECD countries in recent years arguably represents a regime shift that is likely to affect the operation of monetary policy. Some of the practical issues involved are the potential existence of a trade-off between inflation variability and output variability, asymmetries in the short-run Phillips curve, the interaction between monetary and fiscal policies, the effectiveness of monetary policy instruments, the appropriate specification of the price stability objective, as well as the credibility of monetary policy in a near price-stability environment. The results indicate that under many circumstances none of these issues should cause major difficulties at price stability. Furthermore, the analysis tends to strengthen the argument for maintaining relatively tight control over inflation. Sound fiscal policies are an important component for the move to price stability being both sustainable and credible. *************** PROBLÈMES RELATIFS À LA CONDUITE DE LA POLITIQUE MONÉTAIRE DANS UN ENVIRONNEMENT DE STABILITÉ DES PRIXDans ce document sont discutés les enjeux de politique économique ayant trait à la mise en oeuvre de la politique monétaire dans un contexte de faible inflation. Le succès rencontré dans la réduction des taux d'inflation dans un certain nombre de pays de l'OCDE ces dernières années représente un changement de régime qui affectera vraisemblablement la conduite de la politique monétaire. Parmi les conséquences pratiques de ce changement, on peut noter l'existence potentielle d'un arbitrage entre la variabilité de l'inflation et celle de la production, l'asymétrie de la courbe de Phillips à court terme, l'interaction entre les politiques monétaires et budgétaires, la spécification appropriée des objectifs de stabilité des prix, ainsi que la crédibilité de la politique monétaire dans un contexte de prix presque stables. Les résultats indiquent que dans de nombreuses circonstances, aucune de ces questions ne pose de difficulté majeure en régime de stabilité des prix. L'analyse tend même à renforcer l'argument en faveur du maintien d'un contrôle assez strict de l'inflation. Par ailleurs, des politiques budgétaires saines sont une composante importante pour que le mouvement vers la stabilité des prix soit à la fois réalisable et crédible.

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Asymmetric Effects of Economic Activity on Inflation: Evidence and Policy Implications

Cited by 109 publications

References 10 publications

A closer look at the Phillips curve using state-level data

A closer look at the Phillips curve using state-level data

Structural Unemployment in Denmark

Monetary Policy at Price Stability

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