Time-Varying Phillips Curves / Joseph S. Vavra.

Format:

Book

Author/Creator:

Vavra, Joseph S.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19790.

NBER working paper series no. w19790

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

A growing theoretical literature argues that aggregate price flexibility and the inflation-output tradeoff faced by central banks should rise with microeconomic price change dispersion. However, there is little empirical work testing this prediction. I fill this gap by estimating time-varying forward looking New-Keynesian Phillips Curves (NKPC). I reject a NKPC with constant inflation-output tradeoff in favor of a slope that increases with microeconomic volatility. In contrast, there is no evidence that the inflation-output tradeoff varies with aggregate volatility or the business cycle more generally. Furthermore, I show that greater volatility does not affect price flexibility purely through increases in frequency.

Notes:

January 2014.

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