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Nonlinearity of the inflation-output trade-off and time-varying price rigidity

Author

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  • Antonia Lopez Villavicencio
  • Valérie Mignon

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

Relying on the backward-looking Phillips curve, we estimate the level of inflation that erodes price rigidity and investigate its time constancy. To this end, we employ smooth transition regression models with rolling regressions to account for varying threshold inflation levels. Studying six advanced countries over the 1970-2012 period, our results show that both the slope of the Phillips curve and the threshold trend inflation that erodes price rigidity are time varying. These characteristics could not be captured by a static linear or nonlinear model, illustrating the rich flexibility embedded in our proposed model.

Suggested Citation

  • Antonia Lopez Villavicencio & Valérie Mignon, 2013. "Nonlinearity of the inflation-output trade-off and time-varying price rigidity," Working Papers hal-04141225, HAL.
    • Handle: RePEc:hal:wpaper:hal-04141225
    Note: View the original document on HAL open archive server: https://hal.science/hal-04141225
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    Cited by:

    1. Imen Kobbi & Foued-Badr Gabsi, 2017. "The Nonlinearity of the New Keynesian Phillips Curve: The Case of Tunisia," Economies, MDPI, vol. 5(3), pages 1-12, July.

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    More about this item

    Keywords

    Phillips curve; inflation; price rigidity; nonlinearity; menu costs;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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