Abstract
This research examines the Phillips curve price adjustment mechanism allowing for the conditional variance of inflation to be time varying. Specifically, we estimate ARCH and GARCH models of inflation for Canada, Japan, and the U.K. The results suggest that an increase in the conditional variability of inflation leads to higher levels of inflation. In addition, inclusion of inflation variability in the Phillips curve model results in a higher weight being attributed to the output gap than in traditional models.
Original language | English |
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Pages (from-to) | 186-197 |
Number of pages | 12 |
Journal | Journal of Economics and Finance |
Volume | 28 |
Issue number | 2 |
DOIs | |
State | Published - 2004 |