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Estimating United States Phillips curves with expectations consistent with the statistical process of inflation / Bill Russell; Rosen Azad Chowdhury

Journal of Macroeconomics, Volume: 35, Pages: 24 - 38

Swansea University Author: Chowdhury, Rosen

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Abstract

Most Phillips curve theories predict inflation is an integrated process.However, inflation appears bounded above and below in developed economies andso cannot be ‘truly’ integrated and more likely stationary around a shifting mean. If agentsbelieve inflation is integrated as in the ‘modern’ theories...

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Published in: Journal of Macroeconomics
ISSN: 01640704
Published: 2013
Online Access: Check full text

URI: https://cronfa.swan.ac.uk/Record/cronfa21606
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Abstract: Most Phillips curve theories predict inflation is an integrated process.However, inflation appears bounded above and below in developed economies andso cannot be ‘truly’ integrated and more likely stationary around a shifting mean. If agentsbelieve inflation is integrated as in the ‘modern’ theories then they are making systematicerrors concerning the statistical process of inflation. An alternative theory of the Phillipscurve is developed that is consistent with the ‘true’ statistical process of inflation. It is demonstratedthat United States inflation data are consistent with the alternative theory butnot with the existing ‘modern’ theories.
Keywords: Phillips curve,Inflation, Structural breaks, GARCH, Non-Stationary data
College: School of Management
Start Page: 24
End Page: 38