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  • P-ISSN 2586-2995
  • E-ISSN 2586-4130
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KDI Journal of Economic Policy. Vol. 38, No. 2, May 2016, pp. 1-20

https://doi.org/10.23895/kdijep.2016.38.2.1

× KDI Open Access is a program of fully open access journals to facilitate the widest possible dissemination of high-quality research. All research articles published in KDI JEP are immediately, permanently and freely available online for everyone to read, download and share in terms of the Creative Commons Attribution 4.0 International License.

Inference and Forecasting Based on the Phillips Curve

KUN HO KIM; SUNA PARK

Author & Article History

Manuscript received 25 April 2016; revision received 26 April 2016; accepted 23 May 2016.

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

Timevarying NAIRU, Randomwalk Phillips curve, NewKeynesian Phillips curve, Uniform confidence band, Model validation, Inflation forecasting

JEL Code

C12, C13, C14

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