Asymmetric Output Cost of Lowering Inflation: Empirical Evidence for Canada

21 Pages Posted: 30 Dec 2002

See all articles by Hyeon-Seung Huh

Hyeon-Seung Huh

Hallym University - Department of Economics

Hyun-Hoon Lee

Kangwon National University

Abstract

A strand of theoretical and empirical evidence in the literature suggests non-linearity in the output-inflation relationship, viz. a non-linear Phillips curve. We develop a VAR model of output, inflation, and terms of trade augmented with logistic smooth transition autoregression specifications. Empirically, the model captures non-linear features present in the data. Output costs of reducing inflation vary, depending on the economy, size of inflation change, and whether policy makers seek to disinflate or prevent inflation from rising. Thus, inferences based on the conventional linear Phillips curve may provide misleading signals about the cost of lowering inflation and the appropriate policy stance.

JEL Classification: C32, E52

Suggested Citation

Huh, Hyeon-Seung and Lee, Hyun-Hoon, Asymmetric Output Cost of Lowering Inflation: Empirical Evidence for Canada. Available at SSRN: https://ssrn.com/abstract=313263

Hyeon-Seung Huh (Contact Author)

Hallym University - Department of Economics ( email )

Chunchon Kangwon, 200-702
South Korea
82-33-240-1309 (Phone)
82-33-255-9109 (Fax)

Hyun-Hoon Lee

Kangwon National University ( email )

Chunchon
Korea, Republic of (South Korea)

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