Empirical Investigation of a Catastrophe Theory Extension of the Phillips Curve

A catastrophe theory model for the relationship between actual inflation, unemployment, and expected inflation that has recently been suggested by Woodcock and Davis is examined. The model's extension of traditional models and its relation to the theory of dynamic system are pointed out. The stagflation model is empirically investigated by means of U.S. data for the period 1957-1984. Estimation equations for the parameters are derived by a modified least squares criterion. Furthermore, the traditional Philips Curve is compared with the catastrophe model by means of a likelihood ratio test.