Is the Phillips Curve Really a Curve? Some Evidence for Canada, the United Kingdom, and the United States

October 1, 1996

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

Previous tests for convexity in the Phillips curve have been biased because researchers have employed filtering techniques for the NAIRU that have been fundamentally inconsistent with the existence of convexity. This paper places linear and nonlinear models of the Phillips curve on an equal statistical footing by estimating model-consistent measures of the NAIRU. After imposing plausible restrictions on the variability in the NAIRU we find that the nonlinear model fits the data best. The implications for the macroeconomic policy debate is that policymakers that are unsuccessful in stabilizing the business cycle will induce a higher natural rate of unemployment.

Subject: Business cycles, Economic growth, Financial markets, Financial services, Inflation, Labor, Prices, Real interest rates, Securities markets, Unemployment rate

Keywords: business cycle, Business cycles, estimates of the NAIRU, excess demand, expectation proxy, Inflation, inflation component, inflation expectation, NAIRU estimate, NAIRU series, natural rate of unemployment estimate, real interest rate, Real interest rates, recursive estimate, Securities markets, standard error, Unemployment rate, unemployment-inflation process, unemployment-inflation tradeoff, WP

Pages:
38
Volume:
1996
DOI:
https://doi.org/10.5089/9781451853421.001
Issue:
111
Series:
Working Paper No. 1996/111
Stock No:
WPIEA1111996
ISBN:
9781451853421
ISSN:
1018-5941

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Notes

Also published in Staff Papers, Vol. 44, No. 2, June 1997.

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