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A Note on the Stability of the Swedish Phillips Curve
Örebro University, Örebro University School of Business.ORCID iD: 0000-0003-0203-4688
Örebro University, Örebro University School of Business.ORCID iD: 0000-0002-4840-7649
2019 (English)In: Empirical Economics, ISSN 0377-7332, E-ISSN 1435-8921Article in journal (Refereed) Epub ahead of print
Abstract [en]

We use Bayesian techniques to estimate bivariate VAR models for Swedish unem-ployment rate and inflation. Employing quarterly data from 1995Q1 to 2018Q3 and new tools for model selection, we compare models with time-varying parameters and/or stochastic volatility to specifications with constant parameters and/or covariance matrix. The evidence in favour of a stable dynamic relationship between the unemployment rate and inflation is mixed. Model selection based on marginal like-lihood calculations indicates that the relation is time varying, whereas the use of the deviance information criterion suggests that it is constant over time; we do, however, note consistent evidence in favour of stochastic volatility. An out-of-sample forecast exercise is also conducted, but similarly provides mixed evidence regarding which model to favour. Importantly though, even if time-varying parameters are allowed for, our results do not suggest that the Phillips curve has been flatter in more recent years. This finding thereby questions the explanation that a flatter Phillips curve is the cause of the low inflation that Sweden has experienced in recent year

Place, publisher, year, edition, pages
Springer, 2019.
Keywords [en]
Inflation, Unemployment, Time-varying parameters, Stochastic volatility
National Category
Economics Probability Theory and Statistics
Research subject
Statistics; Economics
Identifiers
URN: urn:nbn:se:oru:diva-78301DOI: 10.1007/s00181-019-01746-wOAI: oai:DiVA.org:oru-78301DiVA, id: diva2:1374383
Funder
The Jan Wallander and Tom Hedelius Foundation, P18-0201Available from: 2019-11-29 Created: 2019-11-29 Last updated: 2019-12-03Bibliographically approved

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Karlsson, SuneÖsterholm, Pär

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