Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/71973
Authors: 
De Veirman, Emmanuel
Year of Publication: 
2007
Series/Report no.: 
Working Papers, The Johns Hopkins University, Department of Economics 536
Abstract: 
It is standard to model the output-inflation trade-off as a linear relationship with a time-invariant slope. We assess empirical evidence for three types of nonlinearity in the short-run Phillips curve. At an empirical level, we aim to discover why large negative output gaps in Japan during the period 1998-2002 did not lead to accelerating deflation, but instead coincided with stable, be it moderately negative inflation. We document that this episode is most convincingly interpreted as reflecting a gradual flattening of the Phillips curve. The broader relevance of our analysis lies in its attempt to shed light on the determinants of such time-variation in the Phillips curve slope. Our results suggest that, in any economy where trend inflation is substantially lower (or substantially higher) today than in past decades, time-variation in the slope of the short-run Phillips curve has become too important to ignore.
Subjects: 
nonlinear Phillips curve
time-varying parameter models
JEL: 
C22
C32
E31
E32
Document Type: 
Working Paper

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