Testing for Asymmetry in the Inflation-Unemployment Trade-off: Some Evidence for the USA

Miguel St. Aubyn ()

No 2000/05, Working Papers from Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.

Abstract: Two sources of asymmetry in the Phillips curve are considered: the "capacity constraint hypothesis" and downward rigidity on wages and/or prices. The short run trade-off between inflation changes and the unemployment gap is modeled in a state-space framework that allows for time variation in both the NAIRU and the trade-off parameter. Empirical evidence for the US using the Kalman filter favors convexity of the Phillips curve, the trade-off depending positively on the unemployment gap and on inflation changes. The two sources of asymmetry produce almost equivalent observational models, so it is not possible to distinguish one from the other.

Keywords: Phillips curve; Kalman filter; state-space models; NAMU (search for similar items in EconPapers)
JEL-codes: E31 C32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-lab, nep-ltv and nep-mon
Date: 2000
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