This thesis presents an empirical analysis of the unemployment hysteresis in the Czech Republic on quarterly data from 1999 to 2015. The hysteresis is modelled by allowing for: (i) impact of the cyclical unemployment on the NAIRU; (ii) impact of the long-term un- employment on the NAIRU. Models are written in state space form and estimated using Bayesian approach. The main contributions of this thesis are as follows. The results pro- vide robust evidence in favour of the hysteresis in the Czech Republic, but precise size of the hysteresis effect is surrounded by relatively large uncertainty. Posterior mean estimates of key parameters indicate that in response to increase in the cyclical unemployment of 1 percentage point, the NAIRU increases by 0.15 percentage points. The first specification of the hysteresis implies that the hysteresis induced changes in the Czech Republic's NAIRU of at most 1 percentage point. The hysteresis specified as impact of the long-term unemploy- ment on the NAIRU then implies even weaker effect, inducing changes in the NAIRU of at most 0.6 percentage points. The models are estimated jointly with the hybrid Phillips curve identified using survey forecasts as proxies for the expectations. Estimate of the expecta- tions' parameter 0.65 indicates the forward-looking nature of the Czech...

M.Comm. / The aim of this dissertation is to undertake an empirical study of the determinants of the Phillips curve for South Africa (SA). The work will be concentrated on the relationship between inflation (or wage inflation) and unemployment in SA from 1980 to 1998 with a particular focus on the behaviour of the Non Accelerating Inflation Rate of Unemployment (NAIRU). Given the importance of the NAIRU in formulating monetary policy, it will be therfore be appropriate to analysed this parameter. The NAIRU tends to perform differently in the face of price and wage inflation and therefore it has been found wise to divide the model into two categories. Price/unemployment model. Wage/unemployment model. The first model will be referred to as the Price-Phillips curve where as the second will usually be referred to as the Wage-Phillips curve. Models of Price-Phillips curve and Wage-Phillips curve are valuable tools for policy makers for a number of different purposes. In its original form the wage (or price) — unemployment relationship presents politicians with a list of different trade — offs to choose between inflation and unemployment. The trade-off seems to suggest that policy makers could choose a specific inflation-unemployment combination by controlling aggregate demand. This clearly points out that the trade-off postulated in the Phillips curve can be an usefull tool for monetary policy.

Labor market indicators such as unemployment and labor force participation show a significant amount of heterogeneity across demographic groups, which is often not incorporated in monetary policy analysis. This dissertation is composed of three essays that explore the effect of labor market heterogeneity on the design and conduct of monetary policy. The first chapter, <b>Effect of Monetary Policy Shocks on Labor Market Outcomes</b>, studies this question empirically by looking at dynamics of macroeconomic outcomes to a monetary policy shock. I construct a measure of monetary policy shock using narrative methods that represent the unanticipatory changes in policy. Impulse response of unemployment rates for high and low-skill workers show low-skill workers bear a greater burden of contractionary monetary policy shock. Their unemployment rates increase by almost four times that of the high-skill group. Even though we see differences in dynamic response of unemployment rates, the empirical analysis shows some puzzling results where effects of contractionary shock are expansionary in nature. Moreover, these results are plagued by the “recursiveness assumption” that the shock does not affect current output and prices, which is at odds with theoretical models in the New Keynesian literature. In the second chapter, <b>Skill Heterogeneity in an Estimated DSGE Model</b>, I use a structural model to better identify these shocks and study dynamic responses of outcomes to economic shocks. I build a dynamic stochastic general equilibrium model, which captures skill heterogeneity in the U.S. labor market. I use Bayesian estimation techniques with data on unemployment and wages to obtain distribution of key parameters of the model. Low-skilled workers have a higher elasticity of labor supply and labor demand, contributing to the flatness of the wage Phillips curve estimated using aggregate data. A contractionary monetary policy shock has immediate effects on output and prices, lowering both output and inflation. Moreover, it increases unemployment rates for both high and low-skill groups, the magnitude being larger for the latter group. The presence of labor market heterogeneity will have new implications for the design of monetary policy, that I study in the third chapter, <b>Optimal Monetary Policy with Skill Heterogeneity</b>. I design an optimal policy for the central bank where policymakers respond to the different inflation-unemployment trade-off between high and low-skill workers. The monetary authority must strike a balance between stabilization of inflation, GDP and outcomes of high and low-skill workers separately. This optimal policy can be implemented by a simple interest rate rule with unemployment rates for high and low-skill workers and this policy is welfare improving.

Thesis submitted in fulfilment of the requirements for the degree of Doctor of Philosophy in the FACULTY OF COMMERCE LAW AND MANAGEMENT SCHOOL OF ECONOMICS AND BUSINESS SCIENCES at the UNIVERSITY OF THE WITWATERSRAND / The design and implementation of the monetary policy in South Africa has been based on the idea of a trade-off between inflation and output growth. However, there is no consensus among empirical investigations on the existence of Phillips curve in the present times. While the South African Reserve Bank (SARB) has instrument independence, it does not have goal independence, which implies that there is coordination between the monetary policy and other macroeconomic policies. Thus, if the SARB objectives are in line with the other policy objectives, there should be a relationship between monetary variables and real variables. This therefore shows that in the long-run, monetary policy cannot single-handedly bring about both sustained economic growth and employment creation (SARB, 2014). Thus this study explored inflation dynamics in South Africa by using the Hybrid new Keynesian Phillips curve (HNKPC) and the augmented Gordon’s models. The study firstly estimated the Hybrid new Keynesian Phillips curve model with a view to determine whether Phillips curve exists and ascertain whether the backward-looking or forward-looking components drive inflation dynamics in South Africa using OLS and GMM estimation techniques. The results show that the Phillips curve does not exist in South Africa using various measures of demand-side variable. These findings are robust across estimation methodologies as well as different measurements of inflation expectations and data frequency. While the findings indicated that economic agents in South Africa are both rational and adaptive in predicting inflation, the results clearly showed the dominance of forward looking component over the backward looking element in driving inflation. Secondly, given the focus of the South African monetary authority in maintaining stable inflation rates and the fact that monetary policy need to go hand-in-hand with other policies in order to ensure stable inflation and economic growth (Gruen, Pagan and Thompson, 1999), this study considered the expanded Gordon’s model with a particular focus on how fiscal policy determines the inflation process in South Africa. The purpose of the Gordon’s chapter is to verify the existence or non-existence of Phillips curve in an expanded model, within the context of an augmented “triangle” model while including the monetarist and fiscal side variables, thereby checking whether the PC relationship of recent studies is robust to model specification. Thus, the augmented Gordon’s model was estimated using a holistic approach of including the fiscalist, monetarist and the structuralist schools of thought, using the Vector autoregressive (VAR), vector error correction model (VECM) and innovation accounting techniques. The results confirm the non-existence of PC whereby output growth maintained a negative relationship with inflation rate, signifying no trade-off despite the expanded specification, while the results from output-gap model are inconclusive. Further results showed that the demand-side, fiscal factors and some of the structural variables contribute more to the inflation dynamics in South Africa. Thus the changes in inflation rate are as a result of changes in output growth, government deficit, electricity price and exchange rate. The results confirmed that the Fiscal Theory of the Price Level (FTPL) applies to the South African economy, whereby not only monetary policies should be considered in controlling inflation, but also fiscal policies. On the other hand, the importance of the determinants of inflation rate is not sufficient in observing the inflation dynamics in South Africa; therefore, this study concluded by investigating the level at which inflation becomes detrimental to output growth. In the context of the low levels of economic growth and high levels of unemployment in South Africa, the study analysed the output growth implications of the inflation targeting monetary policy of the South African Reserve Bank that targets an inflation band between three and six percent. Using the Threshold Autoregressive (TAR) and the Sample Splitting Threshold Regression (SSTR) techniques, this study investigated the nonlinear inflation-growth nexus in South Africa with the purpose of identifying the inflation rate band that optimize output growth. The results showed that South Africa is able to accommodate a higher level of inflation beyond the current inflation target band by increasing the band to between seven and nine percent in order to enhance output growth. Our findings support the argument of studies that indicate that moderately higher inflation rate will not be harmful to the economy. / MT2017

[pt] Este trabalho deriva e estima um modelo estrutural para a inflação em economia aberta. O modelo representa a Curva de Phillips Neo-Keynesiana padrão (CPNK) e a Curva Híbrida de Gali e Gertler (1999) como casos particulares. Foram gerados dois conjuntos de estimativas para a economia brasileira, tratada inicialmente como uma economia fechada e a seguir como uma pequena economia aberta. De acordo com a literatura recente, o modelo considera medidas de custo marginal como indicador relevante para a inflação e apresenta inércia inflacionária. Alguns dos resultados podem ser sintetizados da seguinte forma: (i) O Brasil, quando tratado como uma economia fechada, apresenta um grau consideravelmente maior de rigidez nominal do que Estados Unidos e Europa, bem como um elevado índice de indexação; (ii) Em economia aberta com indexação, a aceleração do câmbio nominal acrescido da inflação externa afeta a inflação ao consumidor, efeito este amplificado quanto maior a abertura da economia; (iii) O impacto das variáveis relacionadas a abertura econômica apresenta um pequeno impacto direto, com o somatório de seus coeficientes próximo a zero; (iv). Contudo, o impacto indireto é significativo, alterando consistentemente os pesos associados a inflação defasada e a expectativa da inflação futura. / [en] This work develops and estimates a structural model for inflation in open economies. The model nests the standard New-Keynesian Phillips Curve (NKPC) and the hybrid curve of Gali and Gertler (1999) as particular cases. Two sets of estimates were generated for the Brazilian economy, treated at first as a closed economy and afterwards as a small open economy. In line with recent literature, the model presents inflation inertia and considers a marginal cost measure as the relevant indicator for inflation. Some of the findings can be summarized as follows: (i) Brazil, when treated as a closed economy, shows a considerably higher degree of nominal stickiness than United States and Europe, the same occurs with the level of indexation; (ii) In open economy with indexation, the acceleration of the nominal exchange rate together with external inflation affects consumer inflation, being this effect amplified by the economy s openness; (iii) The direct impact of the variables related to the economy s openness on inflation is small, with the sum of its coeficients close to zero; (iv) However, the indirect impact is significant since it consistently changes the weights associated with lagged inflation and future inflation expectation.

A presente tese, a partir de três ensaios, faz uso de diferentes especificações da curva de Phillips, para discutir distintos objetivos embasados em assuntos relevantes como o processo de determinação de preços e seus custos sociais para a economia brasileira. Neste sentido, o primeiro ensaio utiliza de uma equação de transferência para a especificação da curva de Phillips, a partir do método das variáveis instrumentais, para alcançar a taxa de desemprego não aceleradora da inflação (NAIRU). Este método, para dados trimestrais de 2000 a 2013, possibilitou identificar uma mudança no coeficiente de correlação entre a taxa de desemprego e a taxa de inflação, que passou de um trade-off (negativo) para uma relação positiva, além da permanência da taxa NAIRU acima da taxa de desemprego no período em questão. Preocupando-se com este resultado expressivo, o segundo ensaio se comprometeu em analisar se esse adveio de possíveis não linearidades presentes na curva, preocupação que já havia sido retratada pelo trabalho seminal de Phillips (1958), indicando que a relação da taxa de variação dos salários nominais e a taxa de desemprego seria altamente não linear. Nesse contexto, utilizando o modelo de vetores autorregressivos que considera a não-linearidade dos parâmetros (quebras estruturais), variáveis exógenas de controle (para contornar o problema de omissão de variáveis) para o período de 1995 a 2014, estimou-se a Curva de Phillips Novo-Keynesiana Hibrida (CPNKH) para identificar possíveis quebras estruturais para dados da economia brasileira. O modelo estimado foi caracterizado por um MSIH(2)VAR(1) e foi possível confirmar a não linearidade a partir do teste da razão de verossimilhança, com a identificação de dois períodos bem distintos ao longo da amostra. Além disso, foi verificada uma representatividade maior para o termo inercial (Backward Looking) indicando que as expectativas de inflação contribuem menos para a explicação do processo inflacionário recente da economia brasileira. Uma vez que um dos principais objetivos do Regime de Metas de Inflação (RMI) é ancorar a formação de preços a partir das expectativas futuras dos agentes econômicos, além disso, dada a não linearidade encontrada para dados da economia brasileira no segundo ensaio, e dada as diferentes significâncias, importâncias e patamares para os componentes da curva que representam as expectativas (futuras e passadas), o terceiro ensaio se comprometeu em, ao invés de confiar exclusivamente em uma única medida de tendência central, analisar os quantis de toda a distribuição condicional da variável resposta (taxa de inflação). Utilizando do método da regressão quantílica inversa, que utiliza os blocos em movimento bootstrap de Fitzenberger (1997), descrito por Chernozhukov e Hansen (2005), para o período de maio de 2001 a agosto de 2016, foi possível identificar a importância adquirida pelas expectativas futuras ao longo dos períodos analisados. Quando se faz estimações considerando somente a média condicional, o termo inercial é maior e significativo para praticamente todas as especificações e modelos apresentados. Utilizando do modelo da regressão quantílica inversa, por outro lado, é possível verificar que o termo Forward Looking ganha força e domina o Backward Looking nos três períodos analisados, em diferentes níveis de inflação, demonstrando, assim, o comportamento assimétrico (não linear) do processo inflacionário. Desta forma, foi possível mostrar o amadurecimento do objetivo do RMI e averiguar que os componentes expectacionais da CPNKH, para dados da economia brasileira, foram capazes de manter sua importância e significância em toda distribuição condicional no processo de determinação de preços recente. / The present dissertation, based on three essays, makes use of different specifications for the Phillips curve, to discuss different objectives based on relevant issues such as the process of price determination and its social costs for the Brazilian economy. In this sense, the first assay uses a transfer equation for the specification of the Phillips curve, using the instrumental variables method, to reach the non-accelerating inflation rate of unemployment (NAIRU). This method, for quarterly data from 2000 to 2013, enable the identification of a change in the coefficient of correlation between the unemployment rate and the inflation rate, which transitioned from a trade-off to a positive relation, in addition to the permanence of the NAIRU above the unemployment rate in the period in question. Concerning with this expressive result, the second essay undertook to analyze whether this resulted from possible non-linearities present in the curve, a concern that had already been portrayed by the seminal work of Phillips (1958), indicating that the relation of the rate of change of wages and the unemployment rate would be highly non-linear. In this context, using the autoregressive vector model that considers the non-linearity of the parameters (structural breaks), exogenous variables of control (to circumvent the problem of omission of variables) for the period from 1995 to 2014, it was estimated the Phillips New-Keynesian Hybrid (CPNKH) to identify possible structural breaks for Brazilian economy data. The estimated model was characterized by a MSIH (2) VAR (1) and it was possible to confirm the nonlinearity from the likelihood ratio test, with the identification of two distinct periods throughout the sample. In addition, it was verified a greater representativeness for the inertial term (Backward Looking), indicating that the expectations of inflation contributed less to the explanation of the recent inflationary process of the Brazilian economy. Since one of the main objectives of the Inflation Targeting Regime (ITR) is to anchor the formation of prices based on the future expectations of the economic agents, in addition, given the non-linearity found for the data of the Brazilian economy in the second essay, and considering the different significance, importance and thresholds for the components of the curve that represent (future and past) expectations, the third assay committed to, instead of relying solely on a single measure of central tendency, analyze the quantiles of the entire conditional distribution of the response variable (inflation rate). Using the reverse quantum regression method, which uses the Fitzenberger (1997) bootstrap blocks, described by Chernozhukov and Hansen (2005), for the period from May 2001 to August 2016, it was possible to identify the importance acquired by the expectations over the periods analyzed. When estimating only the conditional average, the inertial term is larger and significant for practically all the specifications and models presented. On the other hand, it is possible to verify the Forward Looking term gaining importance and dominating the Backward Looking in the three analyzed periods, at different levels of inflation, thus, demonstrating the asymmetric (non-linear) behavior of the inflationary process. In this way, it was possible to show the maturity of the objective of the ITR as to verify that the expected components of the CPNKH for the Brazilian economy data were able to maintain its importance and significance in all conditional distribution in the recent pricing process.

We generalize a simple New Keynesian model and show that a flattening of the Phillips curve reduces the size of fiscal multipliers at the zero lower bound (ZLB) on the nominal interest rate. The factors behind the flatting are consistent with micro- and macroeconomic empirical evidence: it is a result of, not a higher level of price rigidity, but an increase in the degree of strategic complementarity in price-setting -- invoked by the assumption of a specific instead of an economy-wide labour market, and decreasing instead of constant-returns-to-scale. In normal times, the efficacy of fiscal policy and resulting multipliers tends to be small because negative wealth effects crowd out consumption, and because monetary policy endogenously reacts to fiscally-driven increases in inflation and output by raising rates, offsetting part of the stimulus. In times of a binding ZLB and a fixed nominal rate, an increase in (expected) inflation instead lowers the real rate, leading to larger fiscal multipliers. Conditional on being in a ZLB-environment, under a flatter Phillips curve, increases in expected inflation are lower, so that fiscal multipliers at the ZLB tend to be lower. Finally, we also discuss the role of solution methods in determining the size of fiscal multipliers. / Series: Department of Economics Working Paper Series

Derivation and Estimation of a New Keynesian Phillips Curve in a Small Open Economy This paper explores how well Swedish inflation is explained by a New Keynesian Phillips Curve. As the real driving variable in the Phillips Curve, a measure of firms' real marginal cost is compared to the traditional output gap. The results show that, with real marginal cost in the Phillips Curve equation, the point estimates generally have the expected positive sign, which is less frequently the case with the output gap. However, with both real marginal cost and the output gap, it is difficult to pin down a statistically significant relationship with inflation. Firm-Level Evidence of Shifts in the Supply of Credit This paper examines empirically whether firms are subject to shifts in credit supply over the business cycle. Shifts in the supply of credit are identified by exploring how firms substitute between commitment credit -- lines of credit -- and non-commitment credit. The results show that firms on average rely more on commitment credits when monetary policy is tight and when the financial health of banks is weaker. The results are consistent with a bank lending channel of monetary policy and with shifts in the supply of credit following deteriorations in banks' balance sheets. Lines of Credit and Investment: Firm-Level Evidence of Real Effects of the Financial Crisis This paper studies how the 2008 financial crisis affected corporate investment in Sweden through its effect on credit availability. The approach is to compare investments of firms before and after the onset of the crisis as a function of their ex ante sensitivity to a credit supply shock, controlling for fundamental determinants of investments. Sensitivity to a credit supply shock is measured as credit reserves, defined as unused credit on lines of credit. The results indicate that the decline in investment following the crisis was not exacerbated by a contraction in the supply of credit.

In the first essay, Persistence in Swedish Unemployment Rates, we study if there is no or weak tendency in unemployment rates to revert back to previous levels. Persistence is caused by: natural rate shocks, long unemployment cycles, and spill-over from cyclical to permanent unemployment. We find evidence of high persistence. The results suggest that the quick rise of unemployment rates during 1992-1994 was caused by large permanent and cyclical shocks in combination with spill-over effects. In the second essay, The Equilibrium Rate of Unemployment in a Small Open Economy, we challenge the common and simplifying assumption that the economy is closed. We set up and estimate a structural unobserved components open economy model for the unemployment rate and the real exchange rate. Our estimates indicate that the foreign sector is of substantial importance when explaining movements in the NAIRU. In the third essay, A Simultaneous Model of the Swedish Krona, the US Dollar and the Euro, we simultaneously estimate the real exchange rates between the Swedish Krona, the US Dollar and the Euro. The exchange rate movements are well explained by potential output, the output gap, terms of trade, the fraction of prime-aged people in the population, and structural government budget deficits. The models work well in an out of sample exercise. In the last essay, Wages, Employment, and Unemployment: The Effect of Benefits, Taxes and Labor Mobility, we study how wages and employment are affected by unemployment insurance and labor mobility. We show that the wage effect of higher unemployment benefits can be either positive or negative, depending on the specification of union utility function and the taxation scheme for financing the benefits. The common claim that wages are lower when a sector bears a higher fraction of unemployment costs does not hold in general. We also show that labor mobility across sectors and increased competition reduces wages and unemployment.

Darbe analizuojamas natūralus nedarbo lygis, Filipso kreivė. Darbo tikslas - įvertinti natūralų nedarbo lygį Lietuvoje. Pirmoje dalyje teoriškai nagrinėjama Filipso kreivė ir jos modifikacijos, kuri yra natūralaus nedarbo lygio teorinis pamatas, bei natūralų nedarbo lygį veikiantys faktoriai, analizuojamos vertinimo metodikos. Antroje dalyje analizuojami Filipso kreivę veikiančių faktorių dinamika Lietuvoje: valstybės išlaidos, komercinių bankų suteiktos paskolos, importo infliacija, naftos, dujų, elektros ir maisto žaliavų kainos. Analizuojami galimi Filipso kreivės struktūriniai lūžiai. Analizuojami natūralų nedarbo lygį veikinatys faktoriai: jaunimo nedarbo lygis ir santykinis dydis darbo jėgoje, emigracija, socialinės apsaugos lygis bei darbo produktyvumas, pateikiama natūralaus nedarbo lygio vertinimo metodologija. Trečioje dalyje vertinamos įvairių Filipso kreivių modifikacijų galiojimo Lietuvoje hipotezės bei vertinamas natūralus nedarbo lygis, apžvelgiami rezultatai ir jų patikimumas. Tyrime statistiškai patikimas Filipso kreivės modelis nebuvo rastas. Apskaičiuotas 12,04% Lietuvos natūralus nedarbo lygio įvertinimas yra tik iš dalies patikimas. Visi regresiniai modeliai parodė statistiškai reikšmingą neigiamą nedarbo lygio ir infliacijos priklausomybę. / Thesis is focused on natural rate of unemployment and variations of Phillips curve. Estimation of natural rate of unemployment in Lithuania is the main objective. In the first part Phillips curve and its variations, which is foundation for natural rate of unemployment as well as other infuencing factors are analysed on theoretical basis. Various estimation techniques are compared. In the second part various factors are analysed in the context of Phillips curve in Lithuania together with possible structural breaks in Phillips curve relationship. Conclusions are drawn from analysis of factors influencing natural rate of unemployment, particularly emigration and social security. Estimation methodology is specified in the second part. In the last part hipothesis of Phillips curve and natural rate of unemployment are tested. In conclusion, no statistically reliable model of Phillips curve based on empirical data is found, though all models proved negative inflation and unemployment relationship in Lithuania. Results show natural rate of unemployment to be 12,04%, though it is important to note, that results are drawn from statistically unreliable model.