Policy Regimes and the Shape of the Phillips Curve in Australia

Mallick, Debdulal (2016): Policy Regimes and the Shape of the Phillips Curve in Australia.

Abstract

We document an evolving pattern in the slope of the Phillips curve in Australia at different frequencies under different monetary policy regimes and labor market regulations. Our estimation strategy relies on the frequency domain estimation but is also complemented by the time domain estimation. We document an upward sloping medium-run Phillips curve in the pre-1977 period, a downward sloping long-run Phillips curve from 1977 to 1993, and a flattened Phillips curve from 1993 onwards. Inflation lagged unemployment during the first period but led during the second period. The Phillips curve at business-cycle frequencies is downward sloping in all periods. We explain our results in terms of the monetary targeting in 1976 and the inflation targeting in 1993 by the RBA, respectively, and important changes in labor relations from the mid-1980s to the mid-1990s. The flattened Phillips curve is also observed in several industrialized countries since their adoption of inflation targeting.

• Item Type: MPRA Paper
• Language: English
• Keywords: Phillips curve, Long-run, Business-cycle, Frequency, Spectral method
• Subjects: C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C49 - Other; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

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