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Asymmetric Effects of Economic Activity on Inflation: Evidence and Policy Implications
Douglas Laxton,Guy Meredith +1 more
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The authors examined the evidence on asymmetries in the effects of activity on inflation and found that high levels of activity raising inflation by more than low levels decrease it, and that policymakers can raise the average level of output over time by responding promptly to demand shocks, thus reducing the variance of output around trend.Abstract:
This paper examines the evidence on asymmetries in the effects of activity on inflation. Data for the G-7 countries are found to strongly support the view that the inflation-activity relationship is nonlinear, with high levels of activity raising inflation by more than low levels decrease it. In the face of such asymmetries, the average level of output in an economy subject to demand shocks will be below the level of output at which there is no tendency for inflation to rise or fall, contrary to the implications of linear models. One implication of these results is that policymakers can raise the average level of output over time by responding promptly to demand shocks, thus reducing the variance of output around trend.read more
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Are monetary-policy reaction functions asymmetric?: The role of nonlinearity in the Phillips curve
TL;DR: In this article, the authors investigated the implications of a nonlinear Phillips curve for the derivation of optimal monetary policy rules and found empirical support for this type of asymmetries in the interest rate-setting behaviour of four European central banks but none for the US Fed.
BookDOI
Exchange Rate Assessment; Extension of the Macroeconomic Balance Approach
Peter Isard,Hamid Faruqee +1 more
TL;DR: The IMF's internal analysis of exchange rate issues has been guided by, and limited by, the conceptual and empirical frameworks that have emerged from the collective research of the economics profession.
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The U.S. Phillips curve: The case for asymmetry
TL;DR: This article showed that identifying convexity in the Phillips curve will become even more difficult if policymakers are successful in avoiding large boom and bust cycles, and that successful policymakers will further weaken the empirical evidence on which such policies are based.
Journal ArticleDOI
Business cycle asymmetries: characterisation and testing based on Markov-switching autoregressions
TL;DR: In this article, the authors developed tests for business cycle asymmetries for Markov-switching autoregressive models, which have standard asymptotics for deepness, steepness, and sharpness.
Posted Content
A System Approach for Measuring the Euro Area NAIRU
Silvia Fabiani,Ricardo Mestre +1 more
TL;DR: In this paper, an empirical framework was adopted based on systems combining an Okun-type relationship between cyclical unemployment and the output gap with a Phillips curve and stochastic laws of motion for the NAIRU and potential output.
References
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Staggered prices in a utility-maximizing framework
TL;DR: In this article, the authors developed a model of staggered prices along the lines of Phelps (1978) and Taylor (1979, 1980), but utilizing an analytically more tractable price-setting technology.
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The role of monetary policy
TL;DR: There is wide agreement about the major goals of economic policy: high employment, stable prices, and rapid growth as discussed by the authors.There is less agreement that these goals are mutually compatible or, among those who regard them as incompatible, about the terms at which they can and should be substituted for one another.
Posted Content
The Federal Funds Rate and the Channels of Monetary Transnission
TL;DR: The authors showed that the interest rate on the Federal Funds is extremely informative about future movements of real macroeconomic variables, more so than monetary aggregates or other interest rates, and argued that the reason for this forecasting is that the funds rate sensitively records shocks to the supply of (not the demand for) bank reserves.
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The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957†
TL;DR: The relationship between unemployment and the rate of change of money wage rates is highly non-linear as discussed by the authors, and it is possible that one of the most important factors influencing the change in money wage rate is the level of unemployment.
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Aggregate Dynamics and Staggered Contracts
TL;DR: In this article, the authors show that staggered wage contracts as short as 1 year are capable of generating the type of unemployment persistence which has been observed during postwar business cycles in the United States.