The Long-Run Phillips Curve is... a Curve

Guido Ascari, Paolo Bonomolo and Qazi Haque

School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

Abstract: In U.S. data, inflation and output are negatively related in the long-run. A Bayesian VAR with stochastic trends generalized to be piecewise linear provides robust reduced-form evidence in favor of a threshold level of trend inflation of around 4%, below which potential output is independent of trend inflation, and above which, instead, potential output is negatively affected by trend inflation. Moreover, this negative relationship is quite substantial: above the threshold every percentage point increase in trend inflation is related to about 1% decrease in potential output per year. A New Keynesian model generalized to admit time-varying trend inflation and estimated via particle filtering provides theoretical foundations to this reduced-form evidence. The structural long-run Phillips curve implied by the estimated New Keynesian model is not statistically different from the one implied by the reduced-form piecewise linear BVAR model.

Keywords: Long-Run Phillips Curve; Inflation; Bayesian VAR; DSGE; Particle Filter. (search for similar items in EconPapers)
Date: 2023-08
References: Add references at CitEc
Citations:

Downloads: (external link)
https://media.adelaide.edu.au/economics/papers/doc/wp2023-07.pdf (application/pdf)

Related works:
Working Paper: The Long-Run Phillips Curve is... a Curve (2024)
Working Paper: The Long-Run Phillips Curve is... a Curve (2023)
Working Paper: The Long-Run Phillips Curve is... a Curve (2023)
Working Paper: The Long-Run Phillips Curve is... a Curve (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:adl:wpaper:2023-07

Access Statistics for this paper

More papers in School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy Contact information at EDIRC.
Bibliographic data for series maintained by Qazi Haque ().