Instability of the Inflation–Output Trade‐Off and Time‐Varying Price Rigidity1. (21st March 2015)

• Record Type: Journal Article
• Authors: López‐Villavicencio, Antonia; Mignon, Valérie
• Is Part Of: Oxford bulletin of economics and statistics. Volume 77:Number 5(2015:Oct.)
• Page Start: 634
• Page End: 654
• Publication Date: 2015-03-21
• Subjects: Economic history -- Periodicals; Great Britain -- Economic conditions -- Periodicals; 330.9
• DOI: 10.1111/obes.12102
• Languages: English
• ISSNs: 0305-9049

Abstract

<abstract abstract-type="main" id="obes12102-abs-0001"> <title> <x xml:space="preserve">Abstract</x> </title> <p>This paper studies the time instability of the Phillips curve by paying particular attention to the inflation environment and price stickiness. We identify various inflation episodes and investigate the changing nature of the curve across these periods for five advanced countries over 1960–2013. We show that the mean inflation, the slope of the curve and the threshold mean inflation that erodes price rigidity are time varying. The inflation environment is a key determinant of the inflation–output relationship, rejecting the evidence of a flat curve and restoring the inflation–output trade‐off above certain inflation thresholds.</p> </abstract>