Inference and Forecasting Based on the Phillips Curve

KDI Journal of Economic Policy 2016, 38(2) 1-20

21 Pages Posted: 27 Jun 2016

See all articles by Kunho Kim

Kunho Kim

Hanyang University

Suna Park

Hanyang University

Date Written: May 31, 2016

Abstract

In this paper, we conduct uniform inference of two widely used versions of the Phillips curve, specifically the random-walk Phillips curve and the New-Keynesian Phillips curve (NKPC). For both specifications, we propose a potentially time-varying natural unemployment (NAIRU) to address the uncertainty surrounding the inflation-unemployment trade-off. The inference is conducted through the construction of what is known as the uniform confidence band (UCB). The proposed methodology is then applied to point-ahead inflation forecasting for the Korean economy. This paper finds that the forecasts can benefit from conducting UCB-based inference and that the inference results have important policy implications.

Keywords: Time-varying NAIRU, Random-walk Phillips curve, New-Keynesian Phillips curve, Uniform confidence band, Model validation, Inflation forecasting

JEL Classification: C12, C13, C14

Suggested Citation

Kim, Kunho and Park, Suna, Inference and Forecasting Based on the Phillips Curve (May 31, 2016). KDI Journal of Economic Policy 2016, 38(2) 1-20, Available at SSRN: https://ssrn.com/abstract=2800867

Kunho Kim (Contact Author)

Hanyang University ( email )

Seoul
Korea, Republic of (South Korea)

Suna Park

Hanyang University ( email )

Seoul
Korea, Republic of (South Korea)

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