Natural Rate Doubts

Roger Farmer

No 2426, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper provides evidence for a low frequency relationship between unemployment, inflation and the nominal interest rate. I show that in the United States from 1959.1 to 1991.3, the unemployment rate, the inflation rate and the federal funds rate can be modelled as non stationary time series linked by two co-integrating equations. One of these equations is stable over the whole sample period, the other is different over the sub periods 1959.1-1979.4 and 1980.1-1999.3. I evaluate the ability of a class of models to explain these facts and conclude that models that incorporate the natural rate hypothesis are inadequate. An alternative class of models, characterized by the existence of an upward sloping long-run Phillips curve, can account for the data.

Keywords: Cointegration; The natural rate hypothesis; The phillips curve (search for similar items in EconPapers)
JEL-codes: E30 E40 E50 (search for similar items in EconPapers)
Date: 2000-04
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Natural rate doubts (2007)
Working Paper: Natural rate doubts (2002)
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