Switching impacts of the output gap on inflation: Evidence from Canada, the UK and the US

摘要: Abstract This paper examines the way in which output gap influences quarterly inflation during period 1970q1–2013q1 Canada, UK and US by adopting a Markov regime-switching model. In addition to regime-dependent effects of gap, this study controls for regime-invariant arising from changes wages, oil prices nominal effective exchange rate. An interesting finding relates positive but varying impact on inflation. Two significantly different regimes are identified whereby probability switching regime 2 (represented relatively high coefficient) peaks markedly consistently across all three countries only when become noticeably large volatile. The cross-country results provide compelling evidence that coefficient assigned rises economy experiences sizable perturbations.