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The Phillips Curve at 60: time for time and frequency

Luís Aguiar-Conraria (), Manuel Martins () and Maria Joana Soares ()
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Maria Joana Soares: NIPE and Department of Mathematics and Applications, University of Minho

CEF.UP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: We estimate the U.S. New Keynesian Phillips Curve in the time-frequency domain with continuous wavelet tools, to provide an integrated answer to the three most controversial issues on the Phillips Curve. (1) Has the short-run tradeoff been stable? (2) What has been the role of expectations? (3)Is there a long-run tradeoff? First, we find that the short-run tradeoff is limited to some specific episodes and short cycles and that there is no evidence of nonlinearities or structural breaks. Second, households' expectations captured trend inflation and were anchored until the Great Recession, but not since 2008. Then, inflation over-reacted to expectations at short cycles. Finally, there is no significant long-run tradeoff. In the long-run, inflation is explained by expectations.

Keywords: Phillips Curve; Inflation; Unemployment; Business Cycles; Continuous Wavelet Transform; Partial Wavelet Gain. (search for similar items in EconPapers)
JEL-codes: C49 E24 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2019-06
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Persistent link: https://EconPapers.repec.org/RePEc:por:cetedp:1902

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