*This paper owes a great deal to Doug Laxton. We also thank Phil Lowe, Glenn Stevens, participants in a seminar at the Reserve Bank of Australia and two referees for helpful comments. The views expressed in this paper are those of the authors and not necessarily those of the Reserve Bank of Australia. Use of any results from this paper should clearly attribute the work to the authors and not to the Reserve Bank of Australia.
Is the Phillips Curve A Curve? Some Evidence and Implications for Australia
Version of Record online: 22 OCT 2007
Volume 74, Issue 227, pages 384–398, December 1998
How to Cite
DEBELLE, G. and VICKERY, J. (1998), Is the Phillips Curve A Curve? Some Evidence and Implications for Australia. Economic Record, 74: 384–398. doi: 10.1111/j.1475-4932.1998.tb01933.x
- Issue online: 22 OCT 2007
- Version of Record online: 22 OCT 2007
The Phillips curve has generally been estimated in a linear framework. This paper investigates the possibility that the Phillips curve is indeed a curve, and shows that a convex short-run Phillips curve may be a more accurate representation of reality than the traditionally used linear specification. The paper also discusses the policy implications of convexity in the Phillips curve. These include the need for policy to be forward looking and to act pre-emptively. Convexity provides a strong rationale for stabilization policy, and it reinforces the need for policy makers to proceed cautiously. It also implies that deep recessions may have only a marginally greater disinflationary impact than shallower ones, unless they induce large credibility bonuses.