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INFLATION DYNAMICS AND THE OUTPUT‐INFLATION TRADE‐OFF: INTERNATIONAL PANEL DATA EVIDENCE
Author(s) -
Bakas Dimitrios,
Chortareas Georgios
Publication year - 2019
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12798
Subject(s) - economics , inflation (cosmology) , panel data , context (archaeology) , econometrics , estimation , sample (material) , macroeconomics , new keynesian economics , monetary economics , monetary policy , paleontology , chemistry , physics , management , chromatography , theoretical physics , biology
We explore the impact of inflation and its variability on the output‐inflation trade‐off using a single‐step approach in a panel data context. Previous empirical approaches focus on either cross‐country or country‐by‐country time‐series analyses. We employ a dynamic heterogeneous panel specification using an all‐encompassing estimation framework accounting for parameter heterogeneity, cross‐sectional dependence, dynamics, and nonstationarity. Our sample covers 60 countries from 1970 to 2010. While inflation variability reduces the trade‐off for specific periods and country groups, an unambiguous and more pronounced negative relation emerges between the inflation rate and the trade‐off. The findings are consistent with the New Keynesian view. ( JEL E31, E12, C23)