Identifying the Phillips curve through shifts in volatility

Kajuth, Florian

doi:10.1016/j.jmacro.2012.08.006

Cited by 3 publications

(6 citation statements)

References 52 publications

(47 reference statements)

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“…In the next step, we constructed the inflation equation on the NKPC format purposefully to identify the relevance and impact of inflation expectations and marginal cost ( ) in accounting for the observed inflation. We followed Chu and Shane (2017) and Kajuth (2012) style and constructed Eqn. (8).…”

Section: Methodsmentioning

confidence: 99%

“…Arguably, from their idea, and in open economy market structure, inflation expectation to the price setters are unrestricted amidst past and future inflationary experiences. Empirically, is modelled either from unobserved inflation (Kajuth, 2012), surveyed based expectations or past experience (Basarac, Skrabic, & Sorić, 2012;Zhang, Osborn, & Kim, 2009)…”

Section: Methodsmentioning

confidence: 99%

“…If the agents of Eqn. (4) are unrestricted, Kajuth (2012), and Chu and Shane (2017) argued, there exists highest odds of unlimited choices between the rational and adaptive inflationary expectations of inflation. In most lower-, and lower middle-income countries, the impact of global shocks have depicted detrimental bearings to the economy.…”

Section: The New Keynesian Phillips Curvementioning

confidence: 99%

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Trade-Off Phillips Curve, Inflation and Economic Implication: The Kenyan Case

Duncan¹,

Li²,

Ssali³

2019

IJEF

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This paper investigated the trade-off and inflation drivers based on the Phillips curve framework to determine the relationship and their impact between inflation, unemployment and output for Kenyan case from 2006:M1 to 2016:M12 by contrasting the 2SLS on 2 different measures of marginal cost with 3 differently instrumented shocks. Results confirmed; (1) significant trade-off that reduced inflation by 2.09% and 0.08% when unemployment and output respectively increase by 1%, while, 1% increase in output demeaned unemployment by 0.02%, (2) the forward-looking inflation and unemployment significantly drive observed inflation, and (3) unlike monetary supply, oil shocks best accounts for the observed dynamics. Although laudable policies been implemented by fiscal and macro-economic planners, they have not achieved the odds to sufficiently contain the import shocks, making both unemployment and the rational expectations to significantly drive the observed inflation. However, revisiting of the incumbent fiscal policies and their tight implementation would facilitate long term price stabilities to reduce the inflationary dynamics. To the significant import shocks, the state should foster feasible macro-economic diversifications, investments policies, modern technologies in real economic activity production, and renewable energy sourcing that would facilitate robust economic growth that would curb large revenue outflows due to commodity imports and cushioning the devaluation of the Kenyan shilling.

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Section: Methodsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Section: The New Keynesian Phillips Curvementioning

confidence: 99%

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Trade-Off Phillips Curve, Inflation and Economic Implication: The Kenyan Case

Duncan¹,

Li²,

Ssali³

2019

IJEF

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“…They found strong evidence that a positive relationship exists in which inflation leads to unemployment in 3-3.5 years, occurring in cycles that last from 8 to 25 or 50 years. However in the short-run, Kajuth [4] found an economically significant trade-off between inflation and the unemployment gap for the US and an even more significant one for the Euro area. de Mendonça [29] analyzes the adoption of inflation targeting in Brazil and finds that there is no unemployment-inflation trade-off even in the short run.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Should policy makers decide to stimulate the economy, the outcomes will be determined by the shape of the Phillips curve, which, if vertical, will indicate that there will be no lasting unemployment-inflation trade-off [2,3]. The concept represented by this curve is an essential building block of almost all (new) Keynesian macroeconomic models [4]. Empirical estimation of the wage curve is also covered in this study in order to search the response levels of employment to changing local labor market conditions, that is, the effect of changes in nominal versus real wage levels on employment.…”

Section: Introductionmentioning

confidence: 99%

Phillips and Wage Curves: Empirical Evidence from Bosnia and Herzegovina

Omerčević¹,

Nuroğlu

2014

Economics Research International

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This study is an empirical examination of the existence and characteristics of the Phillips curve and the wage curve in Bosnia and Herzegovina. The findings indicate that there is no evidence of the existence of the short-term Phillips curve. Instead, the data suggests that in the short-term an increase in inflation leads to an increase in unemployment. The estimated wage curves indicate that only increases in real payment increase employment. The conclusion of this study is that increases in inflation might have a negative short-term impact on the level of employment in Bosnia and Herzegovina.

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NAIRU Estimates for Germany: New Evidence on the Inflation–Unemployment Tradeoff

Kajuth

2016

German Economic Review

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The paper estimates the NAIRU from a Phillips curve relationship in the state-space framework. To identify the inflation-unemployment trade-off we account for a time-varying inflation trend to control for the part of inflation that is not affected by the cyclical component of unemployment. In addition we use shifts in the relative volatility of shocks to unemployment and inflation to address the simultaneity problem in Phillips curve estimations. Applying the method of Rigobon and Sack (2003) allows for a data driven identification of the contemporaneous coefficients on the unemployment gap in the Phillips curve and yields more precise estimates of the structural coefficients in the Phillips curve. This tightens the economic relation on the basis of which the NAIRU is derived.Keywords: non-accelerating inflation rate of unemployment, state-space estimation, identification through heteroskedasticity, trend inflation JEL classification: E24, E31, E32 Non-technical summaryEstimations of the so-called NAIRU -the unemployment rate which is associated with a stable inflation rate -typically yield less satisfactory results for Germany. Partly, this is reflected in a statistically insignificant (or only weakly significant) relation between inflation and unemployment; partly, estimations only allow for very imprecise statements about the level of the NAIRU. This paper aims at improving estimations of the NAIRU with a view to both weaknesses.Our first contribution is to better measure the relevant inflation rate by incorporating a time-varying inflation trend into the Phillips curve. Allowing the first difference of the actual inflation rate to be influenced by the cyclical component of the unemployment rate neglects the fact that inflation might contain a trend component which is unaffected by cyclical variation in the unemployment rate, but rather influenced by inflation expectations and/or the inflation target of monetary policy. Therefore we model trend inflation as an additional unobserved variable and relate the cyclical component of unemployment to the cyclical component of inflation.Second, since observations of the unemployment and inflation rate are (short-run) equilibrium points the Phillips curve is often identified by explicitly or implicitly imposing the restriction that there is no contemporaneous effect (or none at all) from the inflation rate on unemployment. In contrast, we take potential contemporaneous effects into account in a state-space system. To identify the Phillips curve we follow Rigobon and Sack's (2003, 2004) method of identification through heteroskedasticity.We evaluate the effect of both modifications, first, by their impact on the size and significance of the coefficients on the unemployment gap in the Phillips curve. A larger absolute value of the sum of coefficients and smaller standard errors would point to an economically more meaningful relationship between the unemployment gap and the inflation gap. Second, the contributions of filter uncertainty and parameter uncertainty ...

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Identifying the Phillips curve through shifts in volatility

Cited by 3 publications

References 52 publications

Trade-Off Phillips Curve, Inflation and Economic Implication: The Kenyan Case

Trade-Off Phillips Curve, Inflation and Economic Implication: The Kenyan Case

Phillips and Wage Curves: Empirical Evidence from Bosnia and Herzegovina

NAIRU Estimates for Germany: New Evidence on the Inflation–Unemployment Tradeoff

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