The Time-Varying Phillips Correlation

• Published in: Journal of money, credit and banking Vol. 39; no. 5; pp. 1275 - 1283
• Main Author: BENATI, LUCA
• Format: Journal Article
• Language: English
• Published: Malden, USA Blackwell Publishing Inc 01.08.2007; Blackwell Publishing; John Wiley & Sons, Inc; Ohio State University Press
• Subjects: Analysis; band-pass filter; Business; Business cycles; Changes; complex demodulation; Consumer Price Index; Correlation analysis; Correlations; Credit; cross-spectral analysis; Demodulation; E32; E47; E52; E58; Economic dynamics; Economic inflation; Economic theory; Euro Zone; Frequency distributions (Statistics); frequency domain; Inflation; Inflation (Economics); Inflation (Finance); Inflation rates; Macroeconomics; Manycountries; Monetary dynamics; Phillips correlation; Phillips curve; Price level changes; Shorter Papers, Discussions, and Letters; Studies; United States; United States; United States > US; Europe
• ISSN: 0022-2879; 1538-4616
• DOI: 10.1111/j.1538-4616.2007.00066.x

We use complex demodulation techniques to investigate changes in the correlation between real activity and inflation at the business-cycle frequencies in the United States, the United Kingdom, the Eurozone, and 10 other Organization for Economic Cooperation and Development (OECD) countries over the post-WWII era. Consistent with the analysis of Ball, Mankiw, and Romer (1988) we document a positive correlation between the time-varying average gain of real activity onto inflation at the business-cycle frequencies and inflation's Hodrick-Prescott trend, which is compatible with New Keynesian theories emphasizing the link between trend inflation, the frequency of price adjustments, and the slope of the Phillips trade-off.