The Icelandic Phillips Curve: Stability 1991–2018
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...
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Research in applied business and economics
2021
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fticelandunivojs:oai:ojs.pkp.sfu.ca:article/3403 2023-08-20T04:07:33+02:00 The Icelandic Phillips Curve: Stability 1991–2018 Íslenska Phillipskúrfan: Stöðugleiki 1991–2018 Þorleifsson, Óskar Helgi 2021-08-25 application/pdf https://ojs.hi.is/index.php/efnahagsmal/article/view/a.2021.18.1.6 isl ice Research in applied business and economics Tímarit um viðskipti og efnahagsmál https://ojs.hi.is/index.php/efnahagsmal/article/view/a.2021.18.1.6/pdf https://ojs.hi.is/index.php/efnahagsmal/article/view/a.2021.18.1.6 Copyright (c) 2021 Tímarit um viðskipti og efnahagsmál Research in applied business and economics; Vol. 18 No. 1 (2021); 112-132 Tímarit um viðskipti og efnahagsmál; Bnd. 18 Nr. 1 (2021); 112-132 1670-4851 1670-4444 Inflation unemployment Phillips curve E24 E31 Verðbólga atvinnuleysi Phillipskúrfa info:eu-repo/semantics/article info:eu-repo/semantics/publishedVersion 2021 fticelandunivojs 2023-08-01T12:29:33Z 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 ... Article in Journal/Newspaper Iceland University of Iceland: Peer Reviewed Journals Halda ENVELOPE(25.170,25.170,70.853,70.853) |
institution |
Open Polar |
collection |
University of Iceland: Peer Reviewed Journals |
op_collection_id |
fticelandunivojs |
language |
Icelandic |
topic |
Inflation unemployment Phillips curve E24 E31 Verðbólga atvinnuleysi Phillipskúrfa |
spellingShingle |
Inflation unemployment Phillips curve E24 E31 Verðbólga atvinnuleysi Phillipskúrfa Þorleifsson, Óskar Helgi The Icelandic Phillips Curve: Stability 1991–2018 |
topic_facet |
Inflation unemployment Phillips curve E24 E31 Verðbólga atvinnuleysi Phillipskúrfa |
description |
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 ... |
format |
Article in Journal/Newspaper |
author |
Þorleifsson, Óskar Helgi |
author_facet |
Þorleifsson, Óskar Helgi |
author_sort |
Þorleifsson, Óskar Helgi |
title |
The Icelandic Phillips Curve: Stability 1991–2018 |
title_short |
The Icelandic Phillips Curve: Stability 1991–2018 |
title_full |
The Icelandic Phillips Curve: Stability 1991–2018 |
title_fullStr |
The Icelandic Phillips Curve: Stability 1991–2018 |
title_full_unstemmed |
The Icelandic Phillips Curve: Stability 1991–2018 |
title_sort |
icelandic phillips curve: stability 1991–2018 |
publisher |
Research in applied business and economics |
publishDate |
2021 |
url |
https://ojs.hi.is/index.php/efnahagsmal/article/view/a.2021.18.1.6 |
long_lat |
ENVELOPE(25.170,25.170,70.853,70.853) |
geographic |
Halda |
geographic_facet |
Halda |
genre |
Iceland |
genre_facet |
Iceland |
op_source |
Research in applied business and economics; Vol. 18 No. 1 (2021); 112-132 Tímarit um viðskipti og efnahagsmál; Bnd. 18 Nr. 1 (2021); 112-132 1670-4851 1670-4444 |
op_relation |
https://ojs.hi.is/index.php/efnahagsmal/article/view/a.2021.18.1.6/pdf https://ojs.hi.is/index.php/efnahagsmal/article/view/a.2021.18.1.6 |
op_rights |
Copyright (c) 2021 Tímarit um viðskipti og efnahagsmál |
_version_ |
1774719253495152640 |