US Phillips curve estimation without detrending the data.

What is it about?

Micro-founded economic models are estimated using detrended data due to log-linear approximation around the steady state. We provide new evidence on US Phillips Curve by modeling the long-run trend of variables explicitly enhancing conventional analysis. Results show the importance of modeling structural breaks in the trend as well as changing volatility enhancing model's fit and forecasting performance.

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Why is it important?

Micro-founded economic models provide guidance to policy makers as well as forecasters to dissolve economic uncertainty and for making timely and accurate decisions. We show that models that use raw data provide an efficient tool for this aim over the conventional models. This is due to exploiting the information both in the low and medium term variations in the data.