Topic
Triangle model
About: Triangle model is a research topic. Over the lifetime, 40 publications have been published within this topic receiving 479 citations.
Papers
Posted Content•
TL;DR: In this paper, the authors show that the missing deflation problem is not the result of missing deflation, but rather the failure of the Phillips Curve (hereafter PC) to predict negative inflation over the years of labor-market slack.
Abstract: The Phillips Curve (hereafter PC) is widely viewed as dead, destined to the mortuary scrapyard of discarded economic ideas. The coroner's evidence consists of the small standard deviation of the core inflation rate in the past two decades despite substantial volatility of the unemployment rate, and in particular the common tendency of PC inflation equations to predict ever greater amounts of negative inflation (i.e., deflation) over the years of labor-market slack since 2008, sometimes called "the case of the missing deflation". The apparent failure of the PC deprives the Fed of a means of estimating the natural rate of unemployment (or NAIRU), and thus the Fed is steering the economy in a fog with no navigational device to determine the size of the unemployment gap, one of the two primary goals of its "dual mandate." The results of this paper contain important new information for Fed policymakers, for Fed-watchers, and almost everyone else in the community of policy-makers and practitioners of applied macro. The greatest failure in the history of the PC occurred not within the past five years but rather in the mid-1970s, when the predicted negative relation between inflation and unemployment turned out to be utterly wrong. Instead inflation exhibited a strong positive correlation with unemployment. Failure bred success, as a revolution in thinking rebuilt macroeconomics to be not just about demand, but also about supply. By 1980 diagrams of shifting demand and supply curves had appeared in most macroeconomics textbooks. An econometric model of the inflation rate developed in 1982, soon dubbed the "triangle model", incorporated explicit variables for supply shifts and has successfully tracked inflation behavior since then. The triangle model shows that the puzzle of missing deflation is in fact no puzzle. It can estimate coefficients up to 1996 and then in a 16-year-long dynamic simulation, with no information on the actual values of lagged inflation, predict the 2013:Q1 value of inflation to within 0.50 of a percentage point. The slope of the PC relationship between inflation and unemployment does not decline by half or more, as in the recent literature, but instead is stable. The model's simulation success is furthered here by recognizing the greater impact on inflation of short-run unemployment (spells of 26 weeks or less) than of long-run unemployment. The implied NAIRU for the total unemployment rate has risen since 2007 from 4.8 to 6.5 percent, raising new challenges for the Fed's ability to carry out its dual mandate.
145 citations
TL;DR: In this article, the authors consider whether or not Gordon's triangle model is applicable to South Africa, i.e. are hysteresis and inertia present in South Africa? In an attempt to find a better estimation of the output gap, they also experiment with alternative ways to estimate the long-run output level, including the standard HP-filter, as well as a production function approach.
Abstract: Is there a Phillips curve relationship present in South Africa and if so, what form does it take? Traditionally the method to establish whether or not there is a relationship between the output gap and the change in inflation is merely to regress the latter on the former. This yields the well-known augmented Phillips curve. However, Gordon has argued that this specification of the Phillips curve produces biased results. Instead, he puts forward and estimates successfully for several industrialised countries his so-called triangular model that tests for hysteresis and inertia in the behaviour of inflation, as well as the impact on inflation of changes in the output level. This paper considers whether or not Gordon's triangle model is applicable to South Africa, i.e. are hysteresis and inertia present in South Africa? In addition, in an attempt to find a better estimation of the output gap, the paper also experiments with alternative ways to estimate the long-run output level, including the standard HP-filter, as well as a production function approach.
40 citations
TL;DR: In this article, the authors take a look at the current state of the Phillips curve in economic research and its evolution since the seminal Phillips and Samuelson and Solow papers.
Abstract: Almost thirty years ago Paul Samuelson and Bob Solow coined the term “Phillips curve” at the 1959 AEA meetings, reacting promptly to the publication of Phillips's (1958) article. For many years afterward Solow thought and wrote about the Phillips curve and many of the unsettled research puzzles that economists had struggled to resolve under that general heading. As Olivier Blanchard and Peter Diamond remind us, the Samuelson and Solow AEA paper (1960) was farseeing, anticipating many of the major issues that arose later when the Phillips curve started shifting. So it is fitting to take a look at the current state of the Phillips curve in economic research and its evolution since the seminal Phillips and Samuelson and Solow papers. THE PHILLIPS CURVE NOW To determine the difference between present views and those of the 1960s, and to highlight remaining puzzles, I take as my point of departure the current mainstream view of the U.S. inflation process. To find this mainstream view, you can look it up in any of the three best-selling intermediate macroeconomics textbooks. Here we find what I call the “triangle” model of inflation – inflation depends on three basic sets of factors: demand, supply, and inertia. Formally, this model consists of two equations, the modern Phillips curve and a second equation, which, at least in my version, is a pure identity splitting the rate of nominal GNP growth in excess of potential output growth (this is “excess nominal GNP growth”) between inflation and changes in the output gap (i.e., in the log ratio of actual to potential output).
28 citations
Posted Content•
TL;DR: In this article, the authors describe the development of the "triangle" model of inflation, which holds that the rate of inflation depends on inertia, demand and supply, and the model identifies the ultimate source of inflation as nominal GNP growth in excess of potential real output growth.
Abstract: This paper describes the development of the "triangle" model of inflation, which holds that the rate of inflation depends on inertia, demand. and supply. This model differs from most other versions of the Phillips curve by relating inflation directly to the level and rate of change of detrended real output, and by excluding wages, the unemployment rate, and any mention of "expectations." The model identifies the ultimate source of inflation as nominal GNP growth in excess of potential real output growth and implies that a policy rule that targets excess nominal GNP growth is an essential precondition to avoiding an acceleration of inflation, Any residual instability of inflation then depends on the severity of supply shocks. The textbook and econometric versions of the triangle model were developed simultaneously in the mid-1970s. Since then there have been two empirical validations for the U. S. of the model as estimated a decade ago. First, the "sacrifice" ratio of cumulative output loss relative to the decline in inflation during the business slump of the early 1980s was predicted accurately in advance. Second, the natural unemployment rate implied by the model's estimates predicted in advance the slow acceleration of inflation that occurred in began in 1987, when the unemployment rate fell below 6 percent.
22 citations
TL;DR: In this paper, Schlenker's triangle model of accountability was used to explore the relationship between perceptions of the accountability of government, industry, and the regulatory process, and found that perceptions of accountability varied with the level of regulation.
Abstract: Constructs derived from Schlenker's triangle model of accountability were used to explore the relationship between perceptions of the accountability of government, industry, and the regulatory proc...
21 citations
Related Topics (5)
Performance Metrics
| Year | Papers |
|---|---|
| 2021 | 1 |
| 2020 | 2 |
| 2019 | 2 |
| 2018 | 2 |
| 2017 | 1 |
| 2015 | 2 |