ARCH and structural breaks in United States inflation
Author:
- 8 April 2014
- journal article
- research article
- Published by Taylor & Francis in Applied Economics Letters
- Vol. 21 (14) , 973-978
Abstract
United States Phillips curves are routinely estimated without accounting for the shifts in mean inflation. As a result, we may expect the standard estimates of Phillips curves to be biased and suffer from auto-regressive conditional heteroscedasticity (ARCH). We demonstrate this is indeed the case. We also demonstrate that once the shifts in mean inflation are accounted for, the ARCH is largely eliminated in the estimated model and the model defining expected rate of inflation in the New Keynesian model plays no significant role in the dynamics of inflation.Keywords
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