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Is the Phillips Curve Stable? A Time-Varying Parameter Approach

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  • Conway, Roger K.
  • Gill, Gurmukh S.

Abstract

We derive two empirical Phillips curve models based on Robert Gordon's reduced form specification of conventional wage and price equations of a more complete structural model of the U.S. economy. One is a stochastic coefficients model and the other is a conventional fixed coefficients model. We used a stochastic coefficients empirical model to investigate the volatility of the Phillips curve relationship hypothesized by many economists during the 1970's. The visual evidence of the time-varying parameter plots suggests there has been variation in the shortrun Phillips curve. Comparative forecasting shows the stochastic coefficients model dominates the fixed coefficients model, further supporting the hypothesis of volatility.

Suggested Citation

  • Conway, Roger K. & Gill, Gurmukh S., 1987. "Is the Phillips Curve Stable? A Time-Varying Parameter Approach," Staff Reports 277925, United States Department of Agriculture, Economic Research Service.
    • Handle: RePEc:ags:uerssr:277925
    DOI: 10.22004/ag.econ.277925
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    1. Swamy, P.A.V.B. & Conway, Roger K. & LeBlanc, Michael, 1988. "The Stochastic Coefficients Approach to Econometric Modeling, Part III: Estimation, Stability Testing, and Prediction," Journal of Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, vol. 41(1), pages 1-17.

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