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Estimating United States Phillips Curves With Expectations Consistent With The Statistical Process Of Inflation

Bill Russell () and Rosen Azad Chowdhury

No 2012-13, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: ‘Modern’ Phillips curve theories predict inflation is an integrated, or near integrated, process. However, inflation appears bounded above and below in developed economies and so cannot be ‘truly’ integrated and more likely stationary around a shifting mean. If agents believe inflation is integrated as in the ‘modern’ theories then they are making systematic errors concerning the statistical process of inflation. An alternative theory of the Phillips curve is developed that is consistent with the ‘true’ statistical process of inflation. It is demonstrated that United States inflation data is consistent with the alternative theory but not with the existing ‘modern’ theories.

Keywords: Phillips curve; inflation; structural breaks; GARCH; nonstationary data (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-mac
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Related works:
Journal Article: Estimating United States Phillips curves with expectations consistent with the statistical process of inflation (2013) Downloads
Working Paper: ESTIMATING UNITED STATES PHILLIPS CURVES WITH EXPECTATIONS CONSISTENT WITH THE STATISTICAL PROCESS OF INFLATION (2012) Downloads
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