I wish to thank Frank Smets for comments and the Editor, Masao Ogaki, for helpful suggestions. Usual disclaimers apply. The views expressed in this paper are those of the author and do not necessarily reflect those of the Bank of England or the Monetary Policy Committee.
The Time-Varying Phillips Correlation
Article first published online: 25 JUL 2007
Journal of Money, Credit and Banking
Volume 39, Issue 5, pages 1275–1283, August 2007
How to Cite
BENATI, L. (2007), The Time-Varying Phillips Correlation. Journal of Money, Credit and Banking, 39: 1275–1283. doi: 10.1111/j.1538-4616.2007.00066.x
- Issue published online: 25 JUL 2007
- Article first published online: 25 JUL 2007
- Received March 24, 2006; and accepted in revised form April 7, 2006.
- Phillips correlation;
- frequency domain;
- cross-spectral analysis;
- band-pass filter;
- complex demodulation
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.