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The Intermittent Phillips Curve: Finding a Stable (But Persistence- Dependent) Phillips Curve Model Specification

Name: The Intermittent Phillips Curve: Finding a Stable (But Persistence- Dependent) Phillips Curve Model Specification
Published: 2024-08-26
License: https://creativecommons.org/licenses/by/4.0

Principal Investigator(s): View help for Principal Investigator(s) Richard Ashley, Virginia Tech ; Randal Verbrugge, Federal Reserve Bank of Cleveland

Version: View help for Version V1

Name	File Type	Size	Last Modified
IntermittentPCAshleyVerbruggeRepData.xlsx	application/vnd.openxmlformats-officedocument.spreadsheetml.sheet	90.7 KB	08/26/2024 09:16:AM
IntermittentPCAshleyVerbruggeRepFile.RPF	text/plain	12.8 KB	08/26/2024 09:17:AM
readme.txt	text/plain	1.6 KB	08/23/2024 09:58:AM

Project Citation:

Ashley, Richard, and Verbrugge, Randal. The Intermittent Phillips Curve: Finding a Stable (But Persistence- Dependent) Phillips Curve Model Specification. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2024-08-26. https://doi.org/10.3886/E208705V1

Project Description

Summary:

We make substantial progress on understanding the Phillips curve, yielding important monetary

policy implications. Inflation responds differently to persistent versus moderately persistent (or

transient) fluctuations in the unemployment gap. This persistence-dependent relationship aligns

with business-cycle stages, and is consistent with existing theory. Previous work fails to model

this dependence, thereby finding the numerous “inflation puzzles” – e.g., missing

inflation/disinflation – noted in the literature. Our specification eliminates these puzzles; e.g., the

Phillips curve has not weakened; inflation’s post-2012 slow upward trudge was predictable. The

model’s coefficients are stable, and it provides accurate out-of-sample conditional recursive

forecasts through the Great Recession and recovery.

Keywords: overheating; recession gap; frequency dependence; NAIRU; Phillips curve.

Scope of Project

Subject Terms: overheating; recession gap; frequency dependence; NAIRU; natural rate; Phillips curve

JEL Classification:
      C22 Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
      C32 Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
      E31 Price Level; Inflation; Deflation
      E32 Business Fluctuations; Cycles
      E52 Monetary Policy

Manuscript Number: ECIN-Oct-2023-0420.R2

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