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The Phillips Curve, Macroeconomic Policy, and the Welfare of Canadians

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  • Pierre Fortin
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    Abstract

    A review of the two competing paradigms explaining inflation and unemployment fluctuations singles out the Keynesian Phillips curve as the clear empirical winner over its classic competitors. Reestimation of the Canadian Phillips curve for 1957-90 identifies a sharp structural shift toward a high degree of unemployment hysteresis after 1972. The recent attempt of macropolicy to flatten the aggregate demand curve and limit supply-side shock accommodation, which aims at lower and more stable inflation, is then shown to make unemployment higher and more unstable on average, to an extent that is an increasing function of the degree of hysteresis. Understanding and reducing hysteresis and developing a consensus-based incomes policy that has a chance of alleviating the dismal trade-off should therefore to top research and policy priorities.

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    Bibliographic Info

    Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

    Volume (Year): 24 (1991)
    Issue (Month): 4 (November)
    Pages: 774-803

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    Handle: RePEc:cje:issued:v:24:y:1991:i:4:p:774-803

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    Cited by:
    1. Robert A. Amano & Tony S. Wirjanto, 1995. "An Empirical Investigation into Government Spending and Private Sector Behaviour," Macroeconomics 9502005, EconWPA.
    2. Ossama Mikhail & Curtis J. Eberwein & Jagdish Handa, 2003. "Testing and Estimating Persistence in Canadian Unemployment," Econometrics 0311004, EconWPA.
    3. Ossama Mikhail & Curtis J. Eberwein & Jagdish Handa, 2003. "The Measurement of Persistence and Hysteresis in Aggregate Unemployment," Method and Hist of Econ Thought 0311002, EconWPA.
    4. Craig Ebert, 1994. "Defining price stability: what should we aim for?," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 57, March.
    5. Stephen S. Poloz, . "The Causes of Unemployment in Canada: A Review of the Evidence," Working Papers 94-11, Bank of Canada.
    6. Gordon Wilkinson, 1997. "A Micro Approach to the Issue of Hysteresis in Unemployment: Evidence from the 1988­1990 Labour Market Activity Survey," Working Papers 97-12, Bank of Canada.
    7. Wimanda, Rizki E. & Turner, Paul M. & Hall, Maximilian J.B., 2011. "Expectations and the inertia of inflation: The case of Indonesia," Journal of Policy Modeling, Elsevier, vol. 33(3), pages 426-438, May.
    8. Stephen S. Poloz, 1995. "The Causes of Unemployment in Canada: A Review of the Evidence," Macroeconomics 9502002, EconWPA.
    9. Leeper, Eric M., 1997. "Narrative and VAR approaches to monetary policy: Common identification problems," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 641-657, December.
    10. Ouyang, Ming & Zhou, Dongsheng & Zhou, Nan, 2002. "Estimating marketing persistence on sales of consumer durables in China," Journal of Business Research, Elsevier, vol. 55(4), pages 337-342, April.

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