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Inference and Forecasting Based on the Phillips Curve

Title
Inference and Forecasting Based on the Phillips Curve
Authors
Kun Ho, KimSuna, Park
Keywords
Time-varying NAIRU; Random-walk Phillips curve; New-Keynesian Phillips curve; Uniform confidence band; Model validation; Inflation forecasting
Issue Date
2016-05-31
Abstract
In this paper, we conduct uniform inference of two widely used versions of the Phillips curve, specifically the random-walk Phillips curve and the New-Keynesian Phillips curve (NKPC). For both specifications, we propose a potentially time-varying natural unemployment (NAIRU) to address the uncertainty surrounding the inflation-unemployment trade-off. The inference is conducted through the construction of what is known as the uniform confidence band (UCB). The proposed methodology is then applied to point-ahead inflation forecasting for the Korean economy. This paper finds that the forecasts can benefit from conducting UCB-based inference and that the inference results have important policy implications.
URI
http://www.kdi.re.kr/research/development_view.jsp?pub_no=14783&art_no=2746
http://hdl.handle.net/11125/19743
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2016


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