KDI Journal of Economic Policy

Korea Development Institute (한국개발연구원)
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Inference and Forecasting Based on the Phillips Curve

  • KIM, KUN HO (College of Economics and Finance, Hanyang University) ;
  • PARK, SUNA (College of Economics and Finance, Hanyang University)
  • Received : 2016.04.25
  • Published : 2016.05.31
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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.

Keywords

References

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