The intermittent Phillips curve: finding a stable (but persistence-dependent) Phillips curve model specification
Year: 2023
Type: report
Abstract: We establish that the Phillips curve is persistence-dependent: inflation responds differently to persistent versus moderately persistent (or versus transient) fluctuations in the unemployment rate gap. This persistence-dependent relationship appears to align with business-cycle stages and is thus consistent with existing theory. Previous work fails to model this dependence, thereby finding numerous "inflation puzzles" – e.g., missing inflation/disinflation – noted in the literature. Our specification eliminates these puzzles; for example, the Phillips curve has not weakened, nor was inflation "stubbornly low" in 2019. The model's coefficients are stable, and it provides accurate conditional recursive forecasts through the Great Recession. There are important monetary policy implications.
Source: Working paper
Authors: Richard Ashley, Randal J. Verbrugge
Institutions: Federal Reserve Bank of Cleveland, Virginia Tech
Language: English
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W4320482018