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Employment Growth, Inflation and Output Growth: Was Phillips Right? Evidence from a Dynamic Panel

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  • Guglielmo Maria Caporale
  • Marinko Škare

Abstract

In this paper we analyse the short- and long-run relationship between employment growth, inflation and output growth in Phillips’ tradition. For this purpose we apply FMOLS, DOLS, PMGE, MGE, DFE, and VECM methods to a nonstationary heterogeneous dynamic panel including annual data for 119 countries over the period 1970-2010, and also carry out multivariate Granger causality tests. The empirical results strongly support the existence of a single cointegrating relationship between employment growth, inflation and output growth with bidirectional causality between employment growth and inflation as well as output growth, giving support to Phillips’ Golden Triangle theory.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3502.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3502

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Keywords: employment growth; inflation; output growth; Golden Triangle theory;

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