## 21 March 2016

### More On Japan's Phillips Curve

When I saw these two graphs from Jason Smith, I was immediately a little wary:

It seems that the slope of the Phillips curve in Japan has decline significantly over the last few decades.

But I thought I would do some of my own calculations, so I took the same data I was using before, except now expressed as a change from twelve months ago, and found the slope and p-values over the prior five years for each year between 1992 and 2015. The results were a little different than Jason's (which is understandable given the shorter time horizon):

Interestingly, if you ignore the periods with really high p-values (1992-1997, 2003-2007, and 2015), the Phillips curve seems to have a pretty consistent slope over the previous five years.

I'm not sure what to make of the previously mentioned periods with really high p-values except that the slope of the Phillips curve was effectively zero at those times. Basically the 2003-2007 period saw little change in inflation corresponding with consistent, high employment growth. Theoretically, I'd say this probably reflects non-cyclical changes in employment, which would mean that the Phillips curve wouldn't be seen in the data, but this explanation may not be satisfactory.

I don't know how to explain '92-'97 (which also includes the prior five years: 1987-1991), although I would note that Jason seems to have gotten a relatively high slope for this period and that the period I was most concerned with was the period directly following the great recession, in which the Phillips curve seems to have reasserted itself -- which does indeed make sense, considering the recession of 2008 was almost definitely cyclical.

My hypothesis is that Jason's slopes for the 2008-2015 period are held down by his inclusion of the Koizumi boom.