TY - CHAP

T1 - Balance Sheet Recessions and Time-Varying Coefficients in a Phillips Curve Relationship

T2 - An Application to Finnish Data

AU - Juselius, Katarina

PY - 2014

Y1 - 2014

N2 - Edmund Phelps (1994) introduced a modified Phillips curve where the natural rate of unemployment is a function of the real interest rate instead of a constant. Koo (2010) argues that the effect of the interest rate on the macro economy is likely to be diluted during a balance sheet recession such as those recently seen in many countries. In the late 1980s, after having deregulated credit and capital movements, Finland experienced a housing boom which subsequently developed into a serious economic crisis similar to the recent ones. To learn from the Finnish experience we estimate the Phelps modified Phillips curve and use a Smooth Transition (STR) model to distinguish between ordinary periods and balance sheet recessions.

AB - Edmund Phelps (1994) introduced a modified Phillips curve where the natural rate of unemployment is a function of the real interest rate instead of a constant. Koo (2010) argues that the effect of the interest rate on the macro economy is likely to be diluted during a balance sheet recession such as those recently seen in many countries. In the late 1980s, after having deregulated credit and capital movements, Finland experienced a housing boom which subsequently developed into a serious economic crisis similar to the recent ones. To learn from the Finnish experience we estimate the Phelps modified Phillips curve and use a Smooth Transition (STR) model to distinguish between ordinary periods and balance sheet recessions.

KW - Faculty of Social Sciences

KW - smooth transition model

KW - cointegration

KW - Phillips curve

KW - financial crisis

U2 - 10.1093/acprof:oso/9780199679959.003.0005

DO - 10.1093/acprof:oso/9780199679959.003.0005

M3 - Book chapter

SN - 9780199679959

BT - Essays in Nonlinear Time Series Econometrics

PB - Oxford University Press

ER -