Unemployment and inflation persistence in Spain: Are there Phillips trade-offs?

Juan Dolado, David Lopez-Salido and Juan Vega ()

Spanish Economic Review, 2000, vol. 2, issue 3, 267-291

Abstract: This paper studies the dynamic behavior of inflation and unemployment in Spain during the period 1964-1997. In particular, we analyze the implications of high persistence in both unemployment and inflation dynamics for inference regarding the size of Phillips trade-offs and sacrifice ratios in the Spanish economy, in response to a demand shock. To do so we use a Stuctural VAR approach with several identification outlines which give rise to alternative interpretations of the joint unemployment-inflation dynamics. When using a bivariate VAR we cannot reject the existence of a permanent output loss of one-half of one percentage point for each percentage point of permanent disinflation. However, when the VAR is augmented with a third variable, in order to disentangle monetary from non-monetary shocks within the demand class, the evidence favours a lower and marginally permanent trade-off with an output loss of about one-fourth of one percentage point.

Keywords: Phillips trade-offs; sacrifice ratios; vector autoregressions; shocks (search for similar items in EconPapers)
JEL-codes: C32 E12 E13 E24 (search for similar items in EconPapers)
Date: 2001-01-24
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Citations: View citations in EconPapers (4)

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