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The Time‐Varying Phillips Correlation
Author(s) -
BENATI LUCA
Publication year - 2007
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2007.00066.x
Subject(s) - business cycle , economics , phillips curve , inflation (cosmology) , keynesian economics , romer , new keynesian economics , econometrics , macroeconomics , monetary economics , monetary policy , physics , geography , cartography , theoretical physics
We use complex demodulation techniques to investigate changes in the correlation between real activity and inflation at the business‐cycle frequencies in the United States, the United Kingdom, the Eurozone, and 10 other Organization for Economic Cooperation and Development (OECD) countries over the post‐WWII era. Consistent with the analysis of Ball, Mankiw, and Romer (1988) we document a positive correlation between the time‐varying average gain of real activity onto inflation at the business‐cycle frequencies and inflation's Hodrick‐Prescott trend, which is compatible with New Keynesian theories emphasizing the link between trend inflation, the frequency of price adjustments, and the slope of the Phillips trade‐off.