Instability of the Inflation–Output Trade‐Off and Time‐Varying Price Rigidity

Antonia López-Villavicencio () and Valérie Mignon
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Antonia López-Villavicencio: GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne - EM - EMLyon Business School - CNRS - Centre National de la Recherche Scientifique
Valérie Mignon: CEPII - Centre d'études prospectives et d'informations internationales, EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper studies the time instability of the Phillips curve by paying particular attention to the inflation environment and price stickiness. We identify various inflation episodes and investigate the changing nature of the curve across these periods for five advanced countries over 1960–2013. We show that the mean inflation, the slope of the curve and the threshold mean inflation that erodes price rigidity are time varying. The inflation environment is a key determinant of the inflation–output relationship, rejecting the evidence of a flat curve and restoring the inflation–output trade‐off above certain inflation thresholds.

Keywords: Phillips curve; inflation; price rigidity; nonlinearity; menu costs (search for similar items in EconPapers)
Date: 2015-03-21
Note: View the original document on HAL open archive server: https://hal.science/hal-05455819v1
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Published in Oxford Bulletin of Economics and Statistics, 2015, 77 (5), pp.634-654. ⟨10.1111/obes.12102⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05455819

DOI: 10.1111/obes.12102

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