Juan J. Dolado () (Departamento de Economía, Universidad Carlos III de Madrid, c/ Madrid 126, 28903 Getafe , Spain Research Departament, Banco de Espa na, c/ Alcalá 50, 28014 Madrid, Spain Research Department, European Central Bank, Kaisserstraße 29, 60311 Frankfurt, Germany) J. David López-Salido () (Departamento de Economía, Universidad Carlos III de Madrid, c/ Madrid 126, 28903 Getafe , Spain Research Departament, Banco de Espa na, c/ Alcalá 50, 28014 Madrid, Spain Research Department, European Central Bank, Kaisserstraße 29, 60311 Frankfurt, Germany) Juan L. Vega () (Departamento de Economía, Universidad Carlos III de Madrid, c/ Madrid 126, 28903 Getafe , Spain Research Departament, Banco de Espa na, c/ Alcalá 50, 28014 Madrid, Spain Research Department, European Central Bank, Kaisserstraße 29, 60311 Frankfurt, Germany)
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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.
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Find related papers by JEL classification: E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
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