The Phillips Curve and the Lucas Critique: Some Historical Evidence

George Alogoskoufis and Ronald Smith

No 321, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper presents an investigation of the empirical significance of the Lucas Critique for the Phillips Curve. The investigation is carried out with annual historical time series for the United Kingdom (1857-1987) and the United States (1892-1987). The results, for two different models of the Phillips Curve, suggest that there are sizeable and statistically significant shifts in the parameters of wage equations when the process generating price inflation changes. The two major shifts that we identify coincide with the abandonment of the classical gold standard in 1914, and the disintegration of the Bretton Woods gold-dollar standard in the late 1960s.

Keywords: Inflation; Lucas Critique; Phillips Curve; Unemployment (search for similar items in EconPapers)
Date: 1989-06
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