engleski

Stability of phillips curve : the case of Croatia

Phillips curves are generally estimated under the assumption of linearity and parameter constancy. The conventional Phillips curve argues that there is a trade-off or negative relationship between unemployment and inflation or wage inflation. According to Lucas’s critique of econometrics’ empirics, however, there is no parameter stability in the forward–looking economic behaviour model of economic agents. Since the rational expectation theory revolution linear models of inflation have been criticised for their poor forecasting performance. Bai and Perron (1998), proposed the methodology which allows for an unknown number of breaks at unknown dates as a response to the mentioned problem. The purpose of this paper is to investigate the linearity and constancy assumptions of the augmented Phillips curve model using expected inflation variables and the methodology proposed by Bai and Perron and to validate the Phillips curve using Croatia as an example. Data used in this analysis was on quarterly basis from 1994 to 2010.

structural changes; inflation; nominal wages; unemployment; Phillips curve; Croatia

Rasd je kao predavanje prezentiran na skupu The 5th International Scientific Conference - Entrepreneurship and Macroeconomic Management : Reflections on the World in Turmoil, održanom od 24.-26.03.2011., Pula, Hrvatska ; uz međunarodnu recenziju objavljen u Zborniku radova ; K. Afrić Rakitovac, V. Šugar i V. Bevanda, V. (ur.). ; Pula : Juraj Dobrila University of Pula, Department of Economics and Tourism , 2011. 1023-1043 ; ISBN: 978-953-7498-41-2. ; Zbornik je indeskiran u ABI/INFORM PRoquest i EBSCO.