Trends, Random Walks, and the Expectations-Augmented Phillips Curve: Evidence from Six Countries

Walter Wasserfallen

Journal of Money, Credit and Banking, 1988, vol. 20, issue 3, 306-18

Abstract: Two major empirical results are reported. First, it is shown that time series measuring real activity in major industrialized countries contain nonstationarities of the random walk type. Second, it turns out that the estimated influence of unexpected changes in inflation and monetary growth strongly depends on the chosen approach concerning nonstationarity. The popular assumption of a deterministic time trend proxying for growth generally yields the hypothesized positive coefficients. The influence of nominal surprises, however, becomes indistinguishable from zero if the respective equations are estimated in stationary differences of real activity variables. Copyright 1988 by Ohio State University Press.

Date: 1988
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