Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2020:1: Is the Phillips curve dead? International evidence

Annika Alexius (), Michael Lundholm () and Linnea Nielsen ()
Additional contact information
Annika Alexius: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden
Michael Lundholm: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden
Linnea Nielsen: Wahlstedt Sageryd, Postal: Wahlstedt Sageryd, Box 7029, 103 86 Stockholm, ,

Abstract: As the struggle against low inflation intensifies, renewed attention is focusing on the potential instability of the relationship between labor market demand pressure and inflation. A weaker Phillips curve has mainly been documented for the United States. Since it is unlikely that this phenomenon is limited to a single country, more international evidence is required. We analyse changes in the slope of the Phillips curve in eleven OECD countries (including the United States for comparison). Bayesian VAR models with time varying parameters indicate that relationship between inflation and unemployment has strengthened rather than weakened. Shocks to unemployment typically have significant effects on inflation in 2018, indicating that the Phillips curve is still alive and well. The statistical method may matter for the results as rolling window estimation shows a weakened relationship in six out of ten non-US countries.

Keywords: Inflation; Phillips Curve; Bayesian time-varying parameter VARs

JEL-codes: E31; F41

43 pages, March 10, 2020

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