Posterior-Predictive Evidence on US Inflation Using Phillips Curve Models with Non-Filtered Time Series

Baştürk, Nalan; Çakmaklı, Cem; Ceyhan, Pinar; Dijk, Herman K. van

doi:10.2139/ssrn.2198827

Cited by 2 publications

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References 84 publications

(55 reference statements)

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“…Interestingly, even when one sticks to the New Keynesian Phillips curve model the empirical results vary greatly according to the empirical strategy employed(Mavroeidis, Plagborg-Møller, and Stock 2014). 15 Recently,Andrle, Brůha, and Solmaz (2013) andBasturk et al (2013) showed that a blurred relationship between inflation and economic activity resurfaces once one focuses on business cycle frequencies. In this light, extraction of the trend in the rate of inflation seems necessary when analyzing the inflation-real activity nexus.…”

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confidence: 99%

Inflation and the steeplechase between economic activity variables: evidence for G7 countries

Baxa

Plašil

Vašíček

2016

The B.E. Journal of Macroeconomics

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A sharp increase in unemployment accompanied by a relatively muted response of inflation during the Great Recession and a consecutive inflationless recovery cast further doubts on the very existence of the Phillips curve as a systemic relation between real activity and inflation. With the aid of dynamic model averaging, this paper aims to highlight that this relation resurfaces if (i) inflationary pressures are captured by a richer set of real activity measures, and (ii) one accounts for the existence of a non-linear response of inflation to the driving variable. Based on data for the US and other G7 countries, our results show that the relation between economic activity and inflation is quite sturdy when one allows for more complex assessment of the former. We find that measures of economic activity describe inflation developments to a varying degree across time and space. This can blur the picture of inflation–real economy comovements in models where only a single variable of economic activity is considered. The output gap is often outperformed by unemployment-related variables. Our results also confirm a weakening of the inflation–activity relationship (i.e. a flattening of the Phillips curve) in the last decade that is robust both across activity measures and across countries.

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confidence: 99%

Inflation and the steeplechase between economic activity variables: evidence for G7 countries

Baxa

Plašil

Vašíček

2016

The B.E. Journal of Macroeconomics

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“…This paper documents strong comovement of output and inflation using a set of nonrestrictive assumptions, rather than constructing a formal semi-structural model of the Phillips curve with many restrictive assumptions about the data-generating process, as in Basistha and Nelson (2007), for instance. 5 Recently, to avoid these restrictive assumptions, Basturk et al (2013) formulated a complex semi-nonparametric model of the New-Keynesian Phillips curve for the U.S. and proposed a computationally intensive Bayesian method to estimate it. Our approach also avoids the restrictive parametric assumptions of previous studies and, by being formulated in the frequency domain, requires only straightforward and transparent calculations.…”

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confidence: 99%