Unobserved Component Models of the Phillips Relation in the ASEAN Economy

Abstract

The subject of this paper is the estimation of the Phillips relation – the inflation-output gap_x000D_ tradeoff – for ASEAN countries. Unobserved component (UC) models are employed in order_x000D_ to extract the output gap from GDP data. We also obtain stylised facts on macroeconomic cycles namely, (i) that the average cyclical period for output is approximately four years, and(ii) that the output movement leads that of investment. The inflation equation is then estimated as part of a bivariate model that includes an equation for GDP; the lagged output gaps enter the inflation equation as additional explanatory variables. The evidence for the significant relationship between the output gap and inflation in ASEAN appears to be very_x000D_ weak.