Islam, Faridul and Shahbaz, Muhammad and Shabbir, Muhammad (2011): Phillips curve in a small open economy: A time series exploration of North Cyprus.
Download (136Kb) | Preview
The paper explores the existence and the stability of Phillips curve for North Cyprus, a small developing economy, using time series data. ADF unit root test is employed to check for stationarity. ARDL and DOLS approaches to cointegration have been used to explore the long run relation and ECM to understand short run dynamics. The predictive properties DOLS are better than those of the conventional methods. The estimates point to the existence of Phillips curve both in the long and the short run. CUSUM and CUSUMsq tests confirm a stable relation.
|Item Type:||MPRA Paper|
|Original Title:||Phillips curve in a small open economy: A time series exploration of North Cyprus|
|English Title:||Phillips curve in a small open economy: A time series exploration of North Cyprus|
|Keywords:||Inflation, Unemployment, ADF, Cointegration, DOLS|
|Subjects:||E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
|Depositing User:||aviral tiwari|
|Date Deposited:||25. Jan 2011 20:49|
|Last Modified:||11. Feb 2013 19:51|
Agrawal, P. (2001), The relation between saving and growth: cointegration and causality evidence from Asia. Applied Economics, 33, pp: 499-513.
Akerlof, G. A., W. T. Dickens, and G. L. Perry (1996), The Macroeconomics of Low Inflation. Brookings Papers on Economic Activity, 1, pp. 1–76.
Akerlof, G. A., W. T. Dickens, and G. L. Perry (2000), Near-rational Wage and Price Setting and the Long Run Phillips Curve. Brookings Papers on Economic Activity, 1, pp.1–60.
Alexis. C. R, (2008), A Phillips Curve to the Dominican Republic. MPRA Paper 15158.
Alogoskoufis, G. and R. Smith (1991), The Phillips Curve: The Persistence of Inflation, and the Lucas Critique: Evidence from Exchange-Rate Regime. American Economic Review, 81, pp. 1254-1275.
Atkeson, A. and L.E. Ohanian (2001), Are Phillips Curves Useful for Forecasting Inflation?. FRB Minneapolis Quarterly Review, pp. 2-11.
Bahmani-Oskooee, M. and A. Nasir (2004), ARDL Approach to Test the Productivity Bias hypothesis. Review of Development Economics Journal, 8, pp: 483-488.
Bannerjee, A., J. Dolado and R. Mestre (1998), Error-correction Mechanism Tests for Cointegration in Single Equation Framework. Journal of Time Series Analysis, pp. 267-83.
Batini, N., B. Jackson, and S. Nickell (2005), An Open-economy New Keynesian Phillips Curve for the U.K. Journal of Monetary Economics, 52, pp. 1061–1071.
Batini, N., B. Jackson, and S. Nickell (2000), Inflation Dynamics and the Labor Share in the UK. Bank of England External MPC Unit Discussion Paper#2, Nov.
Bhanthumnavin, K. (2002). The Phillips Curve in Thailand. St. Antony’s College, University of Oxford, www.ecomod.net/conferences/ecomod2002.
Brouwer, G. D. and N. R. Ericsson (1998), Modeling Inflation in Australia. Journal of Business and Economic Statistics, 16, pp. 433-449.
Dammak. T. B and Y. Boujelbene (2009), The Nature of the Phillips Curve in Tunisia: New Empirical Evidence. International Journal of Monetary Economics and Finance, 2,p. 126-143.
Del Boca, A, M. Fratianni, F. Spinelli and C. Trecroci (2008), The Phillips Curve and the Italian Lira, 1861-1998. Working Paper, Department of Economics, University of Brescia.
Demers, F. (2003) , The Canadian Phillips Curve and Regime Shifting. Bank of Canada Working Paper 2003-32, Bank of Canada, Ottawa, Canada.
DiNardo, J. and M. Moore (1999), The Phillips Curve is Back? Using Panel Data to Analyze the Relationship between Unemployment and Inflation in an Open Economy. NBER working paper number 7328.
Dua. P and U. Gaur. (2009), Determination of Inflation in an Open Economy Phillips Curve Framework: The Case of Developed and Developing Asian Countries. Working Paper-178, Centre for Development Economics, Delhi School of Economics.
Eliasson, A (2001), Is the Short-run Phillips Curve Nonlinear? Empirical Evidence for Australia, Sweden and the United States”. Sveriges Riksbank Working Paper-124, Stockholm School of Economics, Department of Economic Statistics.
Engle, R. F. and C. W. J. Granger (1987), Cointegration and Error Correction: Representation, Estimation and Testing. Econometrica, 55(2), pp: 251-276.
Friedman, M. (1968), The Role of Monetary Policy. American Economic Review, 58, pp.1-17.
Fuhrer, J. C. (1995), The Phillips Curve is Alive and Well. New England Economic Review, pp. 41-56.
Furuoka, F. (2007), Does the Phillips Curve Really Exist? New Empirical Evidence from Malaysia, Economics Bulletin, 5, pp. 1-14.
Gali, J. and M. Gertler, J. D. Lopez-Salido, (2001), European Inflation Dynamics, European Economic Review, 45, pp. 1237–1270.
Gali, J., Gertler, M., and J.D., Lopez-Salido (2005), Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve, Journal of Monetary Economics, 52, pp. 1107– 18.
Gordon, R.J. (1971), Price in 1970: The Horizontal Phillips Curve. Brookings Papers on Economic Activities, 3, pp. 449-458.
Graham. L and D. Snower (2002), The Return of the Long-Run Phillips Curve, Working Paper, Department of Economics, Birkbeck College, University of London.
Hansen, M and R. Pancs, (2001). The Latvian Labour Market Transition: the Beveridge and Phillips Curve as Indicators of Normalisation. Riga: Euro Faculty.
Hart, R. A. (2003), Overtime Working, the Phillips Curve and the Wage Curve. The Manchester School, 71(2), pp. 97-112.
Hogan, V. (1998), Explaining the Recent Behaviour of Inflation and Unemployment in 12, the United States. IMF Working Paper, No.98/145.
Holden. S. (2004), The Costs of Price Stability – downward Nominal Wage Rigidity in Europe. Economica, 71, pp. 183–208.
Islam, F., K. Hassan, M. Mustafa, and M. Rahman (2003), The Empirics of US Phillips Curve: A Revisit. American Business Review, 20(1), pp. 107-112.
Johansen. S and K. Juselius (1990), Maximum Likelihood Estimation and Inference on Cointegration with Application to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52, pp. 169-210.
Johansen, S. (1988), Statistical Analysis of Cointegration Vector. Journal of Economic Dynamics and Control, 12(2/3), pp. 231-254.
Johansen, S. (1991), Estimation and Hypothesis Testing of Cointegrated Vectors in Gaussian VAR Models. Econometrica, 59(6), pp. 1551-1580.
Khalaf, L. and M. Kichian, (2005), Exact Tests of the Stability of the Phillips Curve: the Canadian Case. Computational Statistics & Data Analysis, 49(2), pp. 445-460.
King, R.G. and M. W. Watson (1994), The Post-War U.S. Phillips Curve: A Revisionist Econometric History. Carnegie-Rochester Series on Public Policy, 41, pp: 157-219.
Kustepeli, Y. (2005), A Comprehensive Short-run Analysis of a (Possible) Turkish Phillips Curve. Applied Economics, 37, pp. 581–91.
Leijonhufvud, A. (1968), Comment: Is there a Meaningful Trade-off between Inflation and Unemployment?. The Journal of Political Economy, 76(4), pp. 738-743.
Leybourne, S. J. and P. Newbold (2003), Spurious rejections by cointegration tests induced by structural breaks, Applied Economics, 35(9), pp. 1117-21.
Liew, K.S. (2004), Which Lag Length Selection Criteria Should we Employ?. Economics Bulletin, 3(33), pp. 1-9.
Lipsey, R.G. (1960), The Relation between Unemployment and the Rate of Change of Money Wage rate in United Kingdom 1962 – 1951. Economica, 27, pp. 1-12.
Lucas, R. E. Jr. (1976), Econometric Policy Evaluation: A Critique. Carnegie-Rochester Series on Public Policy, 1, pp. 19-46.
Lucas, R. E., Jr. (1972), Expectations and the Neutrality of Money,Journal of Economic Theory, 4(2), pp: 103-24.
Lucas, R. E., Jr. (1973), Some International Evidence on Output-Inflation Tradeoffs. American Economic Review, 63(3), pp: 326-334.
Karanassou, M. H. Sala and D. J. Snower. (2010), Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective, Journal of Economic Surveys (2010), 24, pp. 1–51.
Karanassou, M. H. Sala and D. J. Snower. (2003), The European Phillips curve: Does the NAIRU exist?. Applied Economics Quarterly, (2), pp. 93–121.
Karanassou, M. H. Sala and D. J. Snower. (2005), “A Reappraisal of the Inflation- Unemployment Tradeoff”, European Journal of Political Economy, 21, pp. 1–32.
Malinov, M. J. and P. M. Sommers (1997), A New Line on the Phillips Curve. Social Science Quarterly, 78(3), pp. 740-746.
Mankiw, N Gregory, (2001), The Inexorable and Mysterious Tradeoff between Inflation and Unemployment. Economic Journal, pp: 45-61.
Masih, R. and A. M. M. Masih (1996), Stock-Watson Dynamic OLS (DOLS) and Errorcorrection Modeling Approaches to Estimating Long and Short Run Elasticities in Demand Function: New Evidence and Methodological Implications from an Application to the Demand for Coal in Mainland China. Energy Economics, 18, pp. 315-334.
Narayan, P. K. (2005, The Saving and Investment Nexus for China: Evidence from Cointegration Tests, Applied Economics, 37, pp. 1979-1990.
Niskanen, W.A. (2002), On the Death of Phillips Curve. Cato Journal, 22, pp. 193-98.
Ogbokor. C. A, (2005), The Applicability of the Short Run Philips Curve to Namibia. Journal of Social Sciences, 1, pp. 243-245.
Okun, A. M. (1975), Inflation: Its mechanics and welfare costs. Brookings papers on Economic Activity, 2, pp. 351-390.
Onder, A. O, (2009), The Stability of the Turkish Phillips Curve and Alternative Regime Shifting Models. Applied Economics, 41, pp. 2597–2604.
Onder, A. O. (2004), Forecasting Inflation in Emerging Markets by Using the Phillips Curve and Alternative Time Series Models. Emerging Markets Finance and Trade, 40,pp. 71–82.
Paul, B. P. (2009), In Search of the Phillips Curve for India. Journal of Asian Economics, 20, pp. 479-488.
Pesaran, M.H., Shin, Y. and Smith, R.J. (2001), Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16, pp. 289-326.
Phelps. E. (1967), Phillips Curve, Expectation of Inflation, and Optimal Inflation over Time. Economica, 34, pp. 254-281.
Phillips. P. and P. Perron (1988), Testing for a Unit Root in Time Series Regression. Biometrica, 75 (3), pp. 335-346.
Phillips. A.W. (1958), The Relationship between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom. Economica, 25, pp. 258-299.
Phillips, P. C. B. and B. E. Hansen (1990), Statistical Inference in Instrumental Variables Regression with I(1) Processes. Reviews of Economic Studies, 57, pp. 99-125.
Phillips. P. C. B and H. R. Moon. (1999), Linear Regression Limit Theory for Nonstationary Panel Data. Econometrica, 67, pp. 1057-1111.
Phillips. P. C. B and H. R. Moon (2001), Nonstationary Panel Data Analysis: An Overview and Some Recent Developments. Econometric Reviews, 19(3), pp. 263-86.
Phillips. P. C. B and M, Loretan (1991), Estimating Long-Run Economic Equilibria. Review of Economic Studies, 58, pp. 407-436.
Reichel. R. (2004), On the Death of the Phillips Curve: Further Evidence, Cato Journal, 24, pp. 341-348.
Rudd. J., K. Whelan (2005), New Tests of the New-Keynesian Phillips Curve. Journal of Monetary Economics, 52, pp. 1167–1181.
Russell. B, and A. Banerjee (2008), The Long-run Phillips Curve and Non-stationary of Inflation. Journal of Macroeconomics, 30, pp. 1792–1815.
Salman, A. K. and G. Shukur (2004), Testing for Granger Causality between Industrial Output and CPI in the Presence of Regime Shift. Journal of Economic Studies, 31, pp.492-99.
Samuelson, P.A. and R.M. Solow (1960), Analytical aspects of anti-inflation policy. American Economic Review, 5, pp. 177-194.
Scheibe, J. and D. Vines (2005), A Phillips Curve for China. CAMA Working Paper series. Centre for Economic Policy Research, [online; cited May 2006].
Schreiber. S and . Wolters (2007), The Long-Run Phillips Curve Revisited: Is the NAIRU Framework Data-consistent?. Journal of Macroeconomics, 29, pp. 355–367.
Shahbaz. M and M. Rehman (2009), Foreign Capital Inflows-Growth Nexus and Role of Domestic Financial Sector: An ARDL Co-integration Approach for Pakistan. Mimeo.
Shahbaz. M. (2009), Financial Performance and Earnings of Poor People: A Case Study of Pakistan, Journal of Yasar University, 4, pp. 2557-2572.
Solow, R. M. (1970). Discussion of RJ Gordon’s Recent Acceleration of Inflation and its Lessons for the Future. Brookings Papers on Economic Activities, 1, pp. 42-46.
Stock, J.H. and M. Watson (1993), A Simple Estimator of Cointegrating Vectors in Higher Order Integrated System. Econometrica, 61, pp. 783-820.
Tang, C. F., and H. H. Lean. (2007), The Stability of Phillips Curve in Malaysia. Discussion Paper-39, Monash University.
Turner D. and E Seghezza (1999), Testing for a Common OECD Phillips Curve. Economics Department Working Paper No. 219, OECD.
Turner, P. (1997), The Phillips Curve, Parameter Instability and the Lucas Critique. Applied Economics, 29(1), pp: 7-10.
Franz. W, (2005), Will the (German) NAIRU Please Stand Up?. German Economic Review. 2, pp. 131–153.
Wahid, Abu and M. Shahbaz (2009), Does Nominal Devaluation Precede Real Devaluation? The Case of the Philippines. Transition Studies Review, 16, pp. 47-61.
Whelan, K. (1997), The Wage Curve vs. Phillips Curve: Are There Macroeconomic Implications?. Finance and Economics Discussion Series No-1997/51, Board of Governors of the Federal Reserve System (U.S.).