The US Phillips Curve and inflation expectations: A State Space Markov-Switching explanatory model

Guillaume Guerrero and Nicolas Million

No 133, Computing in Economics and Finance 2004 from Society for Computational Economics

Abstract: This paper proposes a new empirical representation of US inflation expectations in a Stace-Space Markov-Switching framework in order to identify the expectations regimes which are associated with short and long term Phillips curves. We explicitly identify the dynamic of inflation expectation errors using the expectations augmented Markov-switching Phillips curve as a measurement equation. In this paper we consider expected inflation as an underlying component of observed inflation. We thus use the same type of specification (occasionally integrated) to describe its dynamic. We have found that dynamics of inflation expectation errors change across regimes. For the last 20 years we show the Phillips curve is vertical and associated with rational inflation expectations. Whereas for the period of economic instability (1973-1983) a negative Phillips curve is associated with adaptive expectations

Keywords: State-Space Markov-Switching model; Inflation expectation errors; Phillips curve; occasionally integrated process (search for similar items in EconPapers)
JEL-codes: C32 C51 E4 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://repec.org/sce2004/up.5701.1077729449.pdf (application/pdf)

Related works:
Working Paper: The US Phillips Curve and inflation expectations: A State Space Markov-Switching explanatory model (2004)
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:sce:scecf4:133

Access Statistics for this paper

More papers in Computing in Economics and Finance 2004 from Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().