Flattening of the Phillips Curve and the Role of Oil Price: An Unobserved Components Model for the USA and Australia

Paradiso, Antonio and Rao, B. Bhaskara (2011): Flattening of the Phillips Curve and the Role of Oil Price: An Unobserved Components Model for the USA and Australia.

Abstract

We use the unobserved components model of Harvey (1989 and 2011) to estimate the Phillips curve (PC) for the USA and Australia, by augmenting it with oil prices. We found that the level coefficient of inflation and the coefficient of demand pressure have declined and contributed to the flattening of the Phillips curve. But the coefficient of oil prices has increased and has partly offset these effects. Therefore, oil prices are likely to play a significant role in future inflation rates.

• Item Type: MPRA Paper
• Language: English
• Keywords: Unobserved components, Harvey, USA, Australia, Flattening of the Phillips curve and Oil prices
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C12 - Hypothesis Testing: General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles

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