A1 - Antonia López-Villavicencio
A1 - Valérie Mignon
TI - Nonlinearity of the inflation-output trade-off and time-varying price rigidity
IS - 2013-02
T3 - Working Papers
KW - Phillips curve
KW - inflation
KW - price rigidity
KW - nonlinearity
KW - menu costs
N2 - Relying on the backward-looking Phillips curve; we estimate the level of inflation that erodes price rigidity and investigate its time constancy. To this end; we employ smooth transition regression models with rolling regressions to account for varying threshold inflation levels. Studying six advanced countries over the 1970-2012 period; our results show that both the slope of the Phillips curve and the threshold; trend inflation that erodes price rigidity are time varying. These characteristics could not be captured by a static linear or nonlinear model; illustrating the rich flexibility embedded in our proposed model.
ER -