Did the Global Financial Crisis Break the U.S. Phillips Curve?
ISBN: 9781475534924
Platform/Publisher: Ebook Central / INTERNATIONAL MONETARY FUND
Digital rights: Users: Unlimited; Printing: Limited; Download: 7 Days at a Time
Subjects: Economics; Business/ Management;

Inflation dynamics, as well as its interaction with unemployment, have been puzzling since the Global Financial Crisis (GFC). In this empirical paper, we use multivariate, possibly time-varying, time-series models and show that changes in shocks are a more salient feature of the data than changes in coefficients. Hence, the GFC did not break the Phillips curve. By estimating variations of a regime-switching model, we show that allowing for regime switching solely in coefficients of the policy rule would maximize the fit. Additionally, using a data-rich reduced-form model we compute conditional forecast scenarios. We show that financial and external variables have the highest forecasting power for inflation and unemployment, post-GFC.


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