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On the empirical relevance of the Lucas supply curve. (A note)

Author

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  • Claude Bismut

    (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)

  • Ismael Ramajo

    (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)

Abstract

In this paper we extend the usual Lucas supply curve to allow the likely external influence on inflation, together with domestic conditions. We test the relationship between the inflation surprise, the output gap and the real exchange rate using simple time series regressions on annual data for a list of 16 developed countries. These tests confirm the empirical relevance of the Lucas supply curve but also support the assumption that part of the inflation surprise may come from unexpected variations of the real exchange rate.

Suggested Citation

  • Claude Bismut & Ismael Ramajo, 2018. "On the empirical relevance of the Lucas supply curve. (A note)," CEE-M Working Papers hal-01954918, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    • Handle: RePEc:hal:wpceem:hal-01954918
    Note: View the original document on HAL open archive server: https://hal.science/hal-01954918
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    References listed on IDEAS

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    1. Fama, Eugene F, 1975. "Short-Term Interest Rates as Predictors of Inflation," American Economic Review, American Economic Association, vol. 65(3), pages 269-282, June.
    2. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Price Expectations and the Phillips Curve," American Economic Review, American Economic Association, vol. 59(3), pages 342-350, June.
    3. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-334, June.
    4. Jakob Brochner Madsen, 1997. "Tests of the Lucas supply curve with price expectational data," Applied Economics Letters, Taylor & Francis Journals, vol. 4(3), pages 195-197.
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    Cited by:

    1. Claude Bismut & Ismael Ramajo, 2019. "Nominal and real interest rates in OECD countries," CEE-M Working Papers hal-02355139, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    2. Sim, Chong Yang, 2021. "A Review on Output-Inflation Trade-off Based on New Classical and New Keynesian Theories," MPRA Paper 105767, University Library of Munich, Germany.
    3. Claude Bismut & Ismael Ramajo, 2019. "Nominal and real interest rates in OECD countries," Working Papers hal-02355139, HAL.
    4. Claude Bismut & Ismaël Ramajo, 2021. "Nominal and real interest rates in OECD countries, changes in sight after covid-19?," International Economics and Economic Policy, Springer, vol. 18(3), pages 493-516, July.

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    Keywords

    inflation surprise imported inflation; output gap; natural rate of unemployment; Lucas supply curve;
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