NEW EVIDENCE ON THE OUTPUT-INFLATION TRADE-OFF FROM ASEAN-5 ECONOMIES

Venus Liew, Kian-Ping Lim and Chin-Hong Puah

The IUP Journal of Applied Economics, 2006, vol. V, issue 2, 16-25

Abstract: The Phillips curve trade-off between output and inflation has for long been a debatable issue in the study of macroeconomics. Both new classical and new Keynesian approaches give contending views in explaining the determinants of the trade-off. The main aim of this study is to investigate empirically whether the output-inflation trade-off in the five major ASEAN economies is inversely related to the variance of inflation (in new classical view) or to the average rate of inflation (in new Keynesian view). Using the simplified version of BMR (1988) and ARY (1988) models proposed by Asai (1999), the authors have found evidence supporting the new Keynesian theory for all the five ASEAN economies under the study. Unlike previous studies, diagnostic tests are conducted to ensure that the model s residuals are uncorrelated serially and are free from any heteroscedasticity effects since the interpretations of these two models are based solely on the t-statistics of the estimated coefficients.

Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjae:v:05:y:2006:i:2:p:16-25

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