NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Time-Varying Phillips Curves

Joseph S. Vavra

NBER Working Paper No. 19790
Issued in January 2014
NBER Program(s):   EFG   ME

A growing theoretical literature argues that aggregate price flexibility and the inflation-output tradeoff faced by central banks should rise with microeconomic price change dispersion. However, there is little empirical work testing this prediction. I fill this gap by estimating time-varying forward looking New-Keynesian Phillips Curves (NKPC). I reject a NKPC with constant inflation-output tradeoff in favor of a slope that increases with microeconomic volatility. In contrast, there is no evidence that the inflation-output tradeoff varies with aggregate volatility or the business cycle more generally. Furthermore, I show that greater volatility does not affect price flexibility purely through increases in frequency.

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Document Object Identifier (DOI): 10.3386/w19790

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