Dundee Discussion Papers in Economics 265:Estimating United States phillips curves with expectations consistent with the statistical process of inflation
‘Modern’ Phillips curve theories predict inflation is an integrated, or near integrated, process. However, inflation appears bounded above and below indeveloped economies and so cannot be ‘truly’ integrated and more likely stationary around a shifting mean. If agents believe inflation is integrated asin the ‘modern’ theories then they are making systematic errors concerning the statistical process of inflation. An alternative theory of the Phillips curveis developed that is consistent with the ‘true’ statistical process of inflation. It is demonstrated that United States inflation data is consistent with thealternative theory but not with the existing ‘modern’ theories
