Did the Global Financial Crisis Break the U.S. Phillips Curve?

July 5, 2016

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Format: Chicago

Stefan Laseen, and Marzie Taheri Sanjani. Did the Global Financial Crisis Break the U.S. Phillips Curve?, (USA: International Monetary Fund, 2016) accessed July 10, 2025

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Inflation dynamics, as well as its interaction with unemployment, have been puzzling since the Global Financial Crisis (GFC). In this empirical paper, we use multivariate, possibly time-varying, time-series models and show that changes in shocks are a more salient feature of the data than changes in coefficients. Hence, the GFC did not break the Phillips curve. By estimating variations of a regime-switching model, we show that allowing for regime switching solely in coefficients of the policy rule would maximize the fit. Additionally, using a data-rich reduced-form model we compute conditional forecast scenarios. We show that financial and external variables have the highest forecasting power for inflation and unemployment, post-GFC.

Subject: Financial crises, Global financial crisis of 2008-2009, Inflation, Labor, Prices, Production, Total factor productivity, Unemployment, Unemployment rate

Keywords: Bayesian Estimation, Coefficient switching, Conditional Forecast, Financial Frictions, Global, Global financial crisis of 2008-2009, Inflation, Inflation dynamics, Inflation equation, Inflation expectation, Inflation gap, Inflation goal, Inflation process, Inflation response, Inflation-unemployment dynamics, PCE inflation, Phillips curve, Regime Switching, Shock variance, Total factor productivity, Unemployment, Unemployment rate, Univariate Phillips curve equation, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/126
Stock No:

WPIEA2016126
ISBN:

9781498348645
ISSN:

1018-5941

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