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Instability of the Inflation–Output Trade‐Off and Time‐Varying Price Rigidity
Author(s) -
LópezVillavicencio Antonia,
Mig Valérie
Publication year - 2015
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12102
Subject(s) - economics , phillips curve , inflation (cosmology) , rigidity (electromagnetism) , economic stability , keynesian economics , instability , monetary economics , econometrics , relative price , monetary policy , physics , structural engineering , theoretical physics , mechanics , engineering
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.