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The Long-Run Phillips Curve and Non-Stationary Inflation

Anindya Banerjee Bill Russell
Authors registered in the RePEc Author Service: Anindya Banerjee () and Bill Russell ()

No ECO2006/16, Economics Working Papers from European University Institute

Abstract: Modern theories of inflation incorporate a vertical long-run Phillips curve and are usually estimated using techniques that ignore the non-stationary behaviour of inflation. Consequently, the estimates obtained are imprecise and are unable to distinguish between competing models of inflation and test the veracity of a vertical long-run Phillips curve. We estimate a Phillips curve model taking into account the non-stationary properties in inflation and identify a small but significant positive relationship between inflation and unemployment. The results provide some evidence that the trade-off between inflation and the unemployment rate in the short-run worsens as the mean rate of inflation increases.

Keywords: Inflation; unemployment; long-run Phillips curve; business cycle; GMM (search for similar items in EconPapers)
JEL-codes: C22 C32 C52 D40 E31 E32 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-ets, nep-mac and nep-mon
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Journal Article: The long-run Phillips curve and non-stationary inflation (2008) Downloads
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