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The Inflation-Unemployment Trade-off and the Significance of the Interest Rate: Some Evidence from United States Data from 1939 through 2007 - Il trade-off tra disoccupazione e inflazione e il ruolo del tasso di interesse: evidenze dagli USA nel periodo 1939-2007

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Author Info

  • Chen, Tao

    ()
    (Open University of Hong Kong, Lee Shau Kee School of Business Administration)

  • Gentle, Paul F.

    ()
    (University of Architecture and Technology Xi’an)

Abstract

This article argues that any empirical study on the inflation-unemployment trade-off requires the inclusion of the real interest rate in the model as any changes in the interest rate affects the capital used by the firms and thus leads to an effect on the level of employment in the economy. To test the validity of this argument, an empirical model is developed which includes the real interest rate as one of the explanatory variables in addition to inflation and real wages. The model is estimated using the annual time series data from the United States for the period from 1939 through 2007, which is available from Gordon (2009a) and the U.S. Bureau of Labor Statistics. The estimated results indicate that the interest rate variable is indeed significant in explaining the Phillips Curve. - Questo articolo argomenta che qualunque studio empirico sul trade-off tra disoccupazione e inflazione richiede l’inclusione del tasso di interesse reale, poiché qualunque modifica nei tassi di interesse influenza la quantità di capitale utilizzato e, di conseguenza, i livelli occupazionali. Per verificare questa affermazione viene sviluppato un modello empirico che include anche il tasso d’interesse reale come variabile esplicativa, oltre a inflazione e salari. Tale modello viene stimato utilizzando dati annuali per gli USA nel periodo 1939-2007. I risultati evidenziano che la variabile tasso d’interesse è realmente significativa per spiegare la curva di Phillips.

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Bibliographic Info

Article provided by Camera di Commercio di Genova in its journal Economia Internazionale / International Economics.

Volume (Year): 64 (2011)
Issue (Month): 2 ()
Pages: 153-171

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Handle: RePEc:ris:ecoint:0613

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Related research

Keywords: Phillips Curve; Short Run; Long Run; Aggregate Supply Curve; United States of America Economic History;

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References

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  1. Thomas J. Sargent & Neil Wallace, 1974. "Rational expectations and the theory of economic policy," Working Papers 29, Federal Reserve Bank of Minneapolis.
  2. N. Gregory Mankiw & Ricardo Reis, 2010. "Imperfect Information and Aggregate Supply," Discussion Papers 0910-11, Columbia University, Department of Economics.
  3. Paul Gentle & Krishna Paudel & Kamal Upadhyaya, 2005. "Real wages, real interest rates, and the Phillips curve," Applied Economics, Taylor & Francis Journals, vol. 37(4), pages 397-402.
  4. Robert Lucas & Mike Golosov, 2004. "Menu Costs and Phillips Curves," 2004 Meeting Papers 144, Society for Economic Dynamics.
  5. Don Bellante & Roger W. Garrison, 1988. "Phillips Curves and Hayekian Triangles: Two Perspectives on Monetary Dynamics," History of Political Economy, Duke University Press, vol. 20(2), pages 207-234, Summer.
  6. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
  7. François R. Velde, 2009. "The recession of 1937 - a cautionary tale," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 16-37.
  8. Gordon, Robert J, 1990. "What Is New-Keynesian Economics?," Journal of Economic Literature, American Economic Association, vol. 28(3), pages 1115-71, September.
  9. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867-1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1.
  10. N. Gregory Mankiw, 1993. "Symposium on Keynesian Economics Today," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 3-4, Winter.
  11. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  12. Meltzer, Allan H., 1976. "Monetary and other explanations of the start of the great depression," Journal of Monetary Economics, Elsevier, vol. 2(4), pages 455-471, November.
  13. Perry, George L, 1986. "Shifting Wage Norms and Their Implications," American Economic Review, American Economic Association, vol. 76(2), pages 245-48, May.
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