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The Inflation-Output Trade-Off: Is the Phillips Curve symmetric? A Policy Lesson from New Zealand

Reserve Bank of New Zealand Discussion Paper No G97/2

28 Pages Posted: 10 Nov 2003  

Weshah A. Razzak

Central Bank of Oman

Date Written: January 1997

Abstract

New Zealand data show that the inflation-output relationship is asymmetric. This asymmetry implies that positive demand shocks tend to increase inflation by more than negative demand shocks of similar magnitudes reduce it. An important implication of this asymmetry is that a monetary authority with the objective of maintaining the inflation rate within a narrow band needs to react more promptly to demand shocks than otherwise be necessary. Alternatively, policy that is slow to respond to demand disturbances will result in higher inflation, and greater losses of output than would be the case with a linear Phillips curve.

JEL Classification: C51, E31, E52

Suggested Citation

Razzak, Weshah A., The Inflation-Output Trade-Off: Is the Phillips Curve symmetric? A Policy Lesson from New Zealand (January 1997). Reserve Bank of New Zealand Discussion Paper No G97/2. Available at SSRN: https://ssrn.com/abstract=321806 or http://dx.doi.org/10.2139/ssrn.321806

Weshah A. Razzak (Contact Author)

Central Bank of Oman ( email )

P.O. Box 1161
Postal Code 112,Ruwi
Oman

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