Did the Global Financial Crisis Break the U.S. Phillips Curve?
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
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.
Series:
Working Paper No. 16/126
Subject:
Econometric models Global Financial Crisis 2008-2009 Inflation Time series Unemployment Vector autoregression
English
Publication Date:
July 5, 2016
ISBN/ISSN:
9781498348645/1018-5941
Stock No:
WPIEA2016126
Format:
Paper
Pages:
42
Please address any questions about this title to publications@imf.org