Identifying the Phillips curve through shifts in volatility

Florian Kajuth

Journal of Macroeconomics, 2012, vol. 34, issue 4, 975-991

Abstract: This paper applies the method of identification through heteroskedasticity (Rigobon and Sack, 2003) to address the simultaneity problem in Phillips curve estimations as an alternative to GMM estimations or exclusion restrictions. This approach makes use of shifts in the relative volatility of shocks to unemployment and inflation to trace out the Phillips curve. Moreover it provides testable restrictions, which is preferable to existing alternatives. Our results suggest a statistically and economically significant contemporaneous trade-off between inflation and the unemployment gap for the US and the euro area, with the trade-off for the euro area being larger.

Keywords: Phillips curve; Inflation–unemployment trade-off; State–space estimation; Identification through heteroskedasticity (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:34:y:2012:i:4:p:975-991

DOI: 10.1016/j.jmacro.2012.08.006

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