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


Stefan Laseen ; Marzie Taheri Sanjani

Publication Date:

July 5, 2016

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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.


Working Paper No. 2016/126



Publication Date:

July 5, 2016



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