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In the long run, US unemployment follows inflation like a faithful dog

Alfred Haug () and Ian King ()

Journal of Macroeconomics, 2014, vol. 41, issue C, 42-52

Abstract: Conventional wisdom holds that, in the long run, the Phillips curve is vertical. We re-examine the relationship between inflation and unemployment in the long run, using quarterly US data from 1952 to 2010, and state-of-the art econometric methods. Using a band-pass filter approach, we find strong evidence that a positive relationship exists, where inflation leads unemployment by some 3–312years, in cycles that last from 8 to 25 or 50years. Tests for multiple structural changes at unknown dates show that this relationship is stable. Our statistical approach is atheoretical in nature, but provides evidence in accordance with the predictions of Friedman (1977) and the recent New Monetarist model of Berentsen et al. (2011): the relationship between inflation and unemployment is positive in the long run.

Keywords: Inflation; Unemployment; The long-run (search for similar items in EconPapers)
JEL-codes: E24 E31 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.jmacro.2014.04.003

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