Research Discussion Paper – RDP 2015-04 The Sticky Information Phillips Curve: Evidence for Australia Abstract

The Sticky Information Phillips Curve (SIPC) provides a theoretically appealing alternative to the sticky-price New-Keynesian Phillips curve (NKPC). This paper assesses the empirical performance of the SIPC for Australia. There is only weak evidence in favour of the SIPC over the low-inflation period. Parameter estimates are sensitive to inflation measures and sample periods, and are theoretically inconsistent for several specifications. The apparent poor performance of the SIPC in part reflects the fact that inflation has become difficult to model since the introduction of inflation targeting. Over sample periods including the early 1990s disinflation, the SIPC appears to fit the data better.