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The Long-Run Phillips Curve is ... a Curve

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  • Ascari, Guido
  • Bonomolo, Paolo
  • Haque, Qazi

Abstract

In U.S. data, inflation and output are negatively related in the long run. A piecewise linear Bayesian VAR provides evidence in favor of a threshold level of trend inflation of around 4%, below which potential output is independent of trend inflation, and above which, potential output is negatively impacted. Every percentage point increase in trend inflation above the threshold is related to about 1% decrease in potential output. An estimated New Keynesian model generalized allowing time-varying trend inflation yields a structural long-run Phillips Curve that is statistically similar to the one implied by the reduced-form piecewise linear BVAR model.

Suggested Citation

  • Ascari, Guido & Bonomolo, Paolo & Haque, Qazi, 2024. "The Long-Run Phillips Curve is ... a Curve," CEPR Discussion Papers 19069, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19069
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    More about this item

    Keywords

    Inflation;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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