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Inference and Forecasting Based on the Phillips Curve

Kun Ho Kim and Suna Park

KDI Journal of Economic Policy, 2016, vol. 38, issue 2, 1-20

Abstract: In this paper, we conduct uniform inference of two widely used versions of the Phillips curve, specifically the random-walk Phillips curve and the New-Keynesian Phillips curve (NKPC). For both specifications, we propose a potentially time-varying natural unemployment (NAIRU) to address the uncertainty surrounding the inflation-unemployment trade-off. The inference is conducted through the construction of what is known as the uniform confidence band (UCB). The proposed methodology is then applied to point-ahead inflation forecasting for the Korean economy. This paper finds that the forecasts can benefit from conducting UCB-based inference and that the inference results have important policy implications.

Keywords: Timevarying NAIRU; Randomwalk Phillips curve; NewKeynesian Phillips curve; Uniform confidence band; Model validation; Inflation forecasting (search for similar items in EconPapers)
JEL-codes: C12 C13 C14 (search for similar items in EconPapers)
Date: 2016
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