Kiel Working Papers, Kiel Institute for World Economics
No 1441:
Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective
Marika Karanassou, Hector Sala and Dennis Snower
Abstract: 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)
Keywords: Natural rate of unemployment, new Phillips Curve, frictional growth, inflationunemployment, tradeoff, inflation dynamics, unemployment dynamics, impulse response function; (follow links to similar papers)
JEL-Codes: E24,; E31; (follow links to similar papers)
52 pages, July 2008
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Downloadable files:
KWP_1441.pdf
Download Statistics
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design Joakim Ekebom