THE RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT IN USA (original) (raw)
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Journal of International Business and Economics, 2015
Inflation and unemployment are integral part of a market economy, with socioeconomic consequences for the population of the countries in which these processes occur. For most of the able-bodied population growing unemployment normally means catastrophe. Unemployment often brings terrible consequences, such as declining incomes and purchasing power, which in turn leads to an inability to raise their living standards. As for inflation, which many of us used to call "the enemy of society #1", its field of activity is increasing pricing of goods and services. For many emerging economies this phenomenon has the character of a disaster. The purpose of this article is to show the connection between inflation and unemployment, if this connection is significant, and which variables can define it. We will try to figure it out by analyzing different opinions of economists concerning the Philips curve, by constructing short-term and long-term Philips curves (basing on statistical data of The Russian Federation) by making some conclusions about the results at the end. We pay special attention in our research to the study of Phillips curve made by some economists of the last century.
Quest for a Valid Phillips Curve in the Long Run: An Empirical Approach
International Business Research, 2017
This paper examines the relationship between inflation rate (percentage change in consumer price index) and unemployment rate (number of unemployed persons as a percentage of the labor force) by using modern econometric approach to find a “Phillips Curve”. Using US data of both monthly and yearly frequency, the paper finds the existence of a long-run trade-off between inflation and unemployment. A linear form of the Phillips curve is estimated for the USA using ordinary least squares estimation (OLS). The co integration test shows the long run relation between the variables. This contradicts the theory that in long run the Phillips curve should be vertical. Some of the findings can be summarized as follows: (a) the Phillips Curve fits the data well; (b) inflation of previous year influences the present rate of inflation and (c) both monthly data and yearly data support the existence of Phillips curve in the long run
The Phillips curve and the inflation dynamics
2018
In this paper we examine the appropriateness of the adoption of the Phillips curve in order to predict changes in the inflation process. We proceed by modelling the Phillips curve framework adopting three different specifications. Our results provide evidence of the presence of a stable Phillips curve in the United States over a long period of time. In particular, all the three models adopted highlight an overall good dynamic tracking performance of the relative estimated Phillips curve in capturing the actual changes in the value of inflation. The underlying implications point out however that the Phillips curve slope has flatten over the time, resulting in a less sensitive inflation to labor market tensions. Moreover, our findings also suggests a situation where a more stable conduction of monetary policy pursued by the Federal Reserve in order to affect the future pattern of the level of inflation accentuates even more the flattening of the slope of the respective estimated Phill...
Reexamining Phillips Curve: An Empirical Analysis from Structural Vector Autoregression
Industrija, 2022
In the literature, the existence of the Phillips curve in every country has been extensively explored. The goal of this research is to investigate the inflation-unemployment trade-off in Indonesia. We used secondary data for 1977 through 2019 from the World Bank for analysis. The Structural Vector Autoregression (SVAR) results revealed a negative connection between unemployment and inflation. There is a one-way relationship between unemployment and inflation in particular. We discovered several factors that influence unemployment. Those factors include working population over 15 years old according to the primary employment (both field and status) and Gross Domestic Product at constant prices according to expenditures.
The Dynamic Phillips Curve Revisited: An Error Correction Model
International Journal of Advances in Management and Economics, 2012
In this paper, we apply different unit root tests on five macroeconomic variables. Nearly all our data exhibit unit root phenomenon, confirming results well-known in the literature. Co-integration tests indicate that there exists one set of co-integration relation in the unemployment-inflation equation. The VAR error correction model explains the expected short-term behavior of changes in unemployment rate on the inflation rate on inflation two years later.
Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective
Journal of Economic Surveys, 2010
The conventional wisdom that inflation and unemployment are unrelated in the long-run implies the compartmentalisation of macroeconomics. While one branch of the literature models inflation dynamics and estimates the unemployment rate compatible with inflation stability, another one determines the real economic factors that drive the natural rate of unemployment. In the context of the new Phillips curve (NPC), we show that frictional growth, i.e. the interplay between lags and growth, generates an inflation-unemployment tradeoff in the long-run. We thus argue that a holistic framework, like the chain reaction theory (CRT), should be used to jointly explain the evolution of inflation and unemployment. A further attraction of the CRT approach is that it provides a synthesis of the traditional structural macroeconometric models and the (structural) vector autoregressions (VARs)
The long-run Phillips curve and non-stationary inflation
Journal of Macroeconomics, 2008
Modern theories of inflation incorporate a vertical long-run Phillips curve and are usually estimated using techniques that ignore the non-stationary behaviour of inflation. Consequently, the estimates obtained are imprecise and are unable to distinguish between competing models of inflation and test the veracity of a vertical long-run Phillips curve. We estimate a Phillips curve model taking into account the non-stationary properties in inflation and identify a small but significant positive relationship between inflation and unemployment. The results provide some evidence that the trade-off between inflation and the unemployment rate in the short-run worsens as the mean rate of inflation increases.
2014
The classical and more recent offshoot textbook Phillips Curve tradeoffs are re-investigated. An empirical analysis is done using annualized quarterly data from 1978 – 2009, which once again confirms there is no long run tradeoff between inflation and unemployment. Further, an empirical search for the short run textbook Phillips Curve is undertaken. Not surprisingly, there appears to be no statistically significant relationship between inflation and unemployment – even in the short run – over the past thirty or more years, and this is true whether the relationship is the classical one between inflation rate and unemployment rate; or the original Modigliani-Papademos NAIRU difference between current and lagged inflation rate and the gap between actual and the natural rate of unemployment; or the Friedman-Phelps-Lucas expectations-augmented one between the difference of actual and expected inflation rate and the gap between actual and the natural rate of unemployment. In search of oth...
The Modern Phillips Curve Revisited
The modern Phillips curve is about the relationship between the average rates of inflation and unemployment. We will provide additional empirical evidence in the US economy from 1948:01 to 2013:03 that helps demonstrate why such a relationship has been built on a wrong methodology, as revealed in Ma [1]. An erroneous approach can lead to a misunderstanding of business cycles and a wrongful implementation of monetary policy. In particular, the way how the two rates may evolve is now at a critical moment for the Fed to decide if an exit from its quantitative easing should be initiated.