Time-Varying Phillips Curves

20 Pages Posted: 4 Jan 2014 Last revised: 28 Jan 2023

See all articles by Joseph Vavra

Joseph Vavra

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: January 2014

Abstract

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.

Suggested Citation

Vavra, Joseph, Time-Varying Phillips Curves (January 2014). NBER Working Paper No. w19790, Available at SSRN: https://ssrn.com/abstract=2374584

Joseph Vavra (Contact Author)

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

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