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The Time-Varying Phillips Correlation

Luca Benati ()

Journal of Money, Credit and Banking, 2007, vol. 39, issue 5, 1275-1283

Abstract: We use complex demodulation techniques to investigate changes in the correlation between real activity and inflation at the business-cycle frequencies in the United States, the United Kingdom, the Eurozone, and 10 other Organization for Economic Cooperation and Development (OECD) countries over the post-WWII era. Consistent with the analysis of Ball, Mankiw, and Romer (1988) we document a positive correlation between the time-varying average gain of real activity onto inflation at the business-cycle frequencies and inflation's Hodrick-Prescott trend, which is compatible with New Keynesian theories emphasizing the link between trend inflation, the frequency of price adjustments, and the slope of the Phillips trade-off. Copyright 2007 The Ohio State University.

Date: 2007
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