The Icelandic Phillips Curve: Stability 1991–2018

• Published in: Tímarit um viðskipti og efnahagsmál
• Main Author: Þorleifsson, Óskar Helgi
• Format: Article in Journal/Newspaper
• Language: Icelandic
• Published: Institute of Business Research 2021
• Subjects: Inflation; unemployment; Phillips curve; E24; E31; Verðbólga; atvinnuleysi; Phillipskúrfa; Halda; Iceland
• Online Access: http://www.efnahagsmal.is/article/view/a.2021.18.1.6; https://doi.org/10.24122/tve.a.2021.18.1.6

In this paper I estimate the slope of the Icelandic Phillips curve and examine its stability for the period 1991–2018. Important factors impacting inflation dynamics have changed during the period. Notably, in 2001, the Central Bank of Iceland gained independence from political interventions and an inflation target was adopted parallel to the adoption of a different exchange rate regime. Moreover, following the great recession, the restrictions on capital movements which facilitated the transmission of monetary policy and later the Central Bank’s success in keeping inflation in accordance with its target. For the whole period, I find an active Phillips curve, which somewhat has characteristics of an accelerationist Phillips curve: A relationship between labour market slack (tightness) and falling (rising) inflation. In the period following the great recession, the correlation of inflation with last period’s inflation drops. Then the relationship is rather between labour market slack and inflation level. This implies that a recession does not have to follow an expansion, even though the central bank aims for stable inflation in the long run. I did not find decisive evidence suggesting flattening of the Phillips curve. Í þessari grein er lagt mat á halla íslenskrar Phillipskúrfu og stöðugleiki sambandsins kannaður á tímabilinu 1991–2018. Umtalsverðar breytingar urðu á umhverfi verðbólguþróunar á tímabilinu. Þá má nefna að Seðlabanki Íslands öðlaðist sjálfstæði frá pólitískum afskiptum, verðbólgumarkmið hefur verið innleitt og breyting varð á fyrirkomulagi gengismála árið 2001. Í kjölfar bankahrunsins komu svo til sögunnar takmarkanir á fjármagnshreyfingum sem auðvelduðu miðlun peningastefnu og síðar velgengni við að halda verðbólgu í samræmi við markmið. Fyrir tímabilið í heild finnst virkt Phillipssamband, sem frekar ber einkenni hröðunar-Phillipskúrfu: Sambandi slaka á vinnumarkaði og aukinnar verðbólgu. Á tímabilinu eftir efnahagshrunið minnkar fylgni verðbólgu við verðbólgu síðasta árs. Sambandið færist þá í ...