The Phillips Curve at 60: Time for Time and Frequency

41 Pages Posted: 15 Jul 2019 Last revised: 18 Nov 2021

See all articles by Luís Aguiar‐Conraria

Luís Aguiar‐Conraria

University of Minho

Manuel M. F. Martins

University of Porto, cef.up, Faculdade de Economia

Maria Joana Soares

University of Minho

Date Written: July 12, 2019

Abstract

We estimate the U.S. New Keynesian Phillips Curve in the time-frequency domain with continuous wavelet tools, to provide an integrated answer to the three most controversial issues on the Phillips Curve. (1) Has the short-run tradeoff been stable? (2) What has been the role of expectations? (3) Is there a long-run tradeoff? First, we find that the short-run tradeoff is limited to some specific episodes and short cycles and that there is no evidence of nonlinearities or structural breaks. Second, households expectations captured trend inflation and were anchored until the Great Recession, but not since 2008. Then, inflation over-reacted to expectations at short cycles. Finally, there is no signi cant long-run tradeoff. In the long-run, inflation is explained by expectations.

JEL Classification: C49, E24, E32

Suggested Citation

Aguiar‐Conraria, Luís and Mota Freitas Martins, Manuel and Soares, Maria Joana, The Phillips Curve at 60: Time for Time and Frequency (July 12, 2019). Bank of Finland Research Discussion Paper No. 12/2019, Available at SSRN: https://ssrn.com/abstract=3419354 or http://dx.doi.org/10.2139/ssrn.3419354

Luís Aguiar‐Conraria (Contact Author)

University of Minho

No Address Available

Manuel Mota Freitas Martins

University of Porto, cef.up, Faculdade de Economia ( email )

4200-464 Porto
Portugal

Maria Joana Soares

University of Minho

No Address Available

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