ESTIMATING UNITED STATES PHILLIPS CURVES WITH EXPECTATIONS CONSISTENT WITH THE STATISTICAL PROCESS OF INFLATION

Bill Russell () and Rosen Azad Chowdhury

No 265, Dundee Discussion Papers in Economics from Economic Studies, University of Dundee

Abstract: ‘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.

Keywords: Phillips curve; inflation; structural breaks; GARCH; non-stationary data (search for similar items in EconPapers)
JEL-codes: C22 C23 E31 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2012-04
New Economics Papers: this item is included in nep-mac and nep-mon
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Related works:
Journal Article: Estimating United States Phillips curves with expectations consistent with the statistical process of inflation (2013)
Working Paper: Estimating United States Phillips Curves With Expectations Consistent With The Statistical Process Of Inflation (2012)
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