Advanced Search
MyIDEAS: Login

The Phillips curve and long-term unemployment

Contents:

Author Info

Registered author(s):

    Abstract

    This paper studies the role of long-term unemployment in the determination of prices and wages. Labor market theories such as insider-outsider models predict that this type of unemployed are less relevant in the wage formation process than the newly unemployed. This paper looks for evidence of this behavior in a set of OECD countries. For this purpose, I propose a new specification of the Phillips Curve that contains different unemployment lengths in a time-varying NAIRU setting. This is done by constructing an index of unemployment that assigns different weights to the unemployed based on the length of their spell. The results show that unemployment duration matters in the determination of prices and wages, and that a smaller weight ought to be given to the long-term unemployed. This modified model has important implications for the policy maker: It produces more accurate forecasts of inflation and more precise estimates of the NAIRU.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp441.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by European Central Bank in its series Working Paper Series with number 441.

    as in new window
    Length: 47 pages
    Date of creation: Feb 2005
    Date of revision:
    Handle: RePEc:ecb:ecbwps:20050441

    Contact details of provider:
    Postal: Postfach 16 03 19, Frankfurt am Main, Germany
    Phone: +49 69 1344 0
    Fax: +49 69 1344 6000
    Web page: http://www.ecb.europa.eu/home/html/index.en.html
    More information through EDIRC

    Order Information:
    Postal: Press and Information Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany
    Email:

    Related research

    Keywords: Long-term unemployment; Phillips curve; NAIRU; Kalman filter.;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Olivier J. Blanchard & Lawrence H. Summers, 1987. "Hysteresis and the European Unemployment Problem," NBER Working Papers 1950, National Bureau of Economic Research, Inc.
    2. Laurence Ball & Robert Moffitt, 2001. "Productivity Growth and the Phillips Curve," Economics Working Paper Archive 450, The Johns Hopkins University,Department of Economics.
    3. Blanchard, O.J. & Diamond, P., 1990. "Ranking, Unemployment Duration, And Wages," Working papers 546, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. John T. Addison & Mário Centeno & Pedro Portugal, 2004. "Reservation Wages, Search Duration, and Accepted Wages in Europe," Working Papers w200413, Banco de Portugal, Economics and Research Department.
    5. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
    6. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
    7. Laurence Ball & N. Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Harvard Institute of Economic Research Working Papers 1963, Harvard - Institute of Economic Research.
    8. Acemoglu, Daron, 1995. "Public Policy in a Model of Long-Term Unemployment," Economica, London School of Economics and Political Science, vol. 62(246), pages 161-78, May.
    9. Andrew Atkeson & Lee E. Ohanian., 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11.
    10. Blackaby, David H & Hunt, Lester C, 1992. "The "Wage Curve" and Long-term Unemployment: A Cautionary Note," The Manchester School of Economic & Social Studies, University of Manchester, vol. 60(4), pages 419-28, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Fed Watch: Rising NAIRU?
      by Mark Thoma in Economist's View on 2010-07-27 07:33:00
    2. Rising NAIRU?
      by Tim Duy in tim duy's fed watch on 2010-07-27 06:09:27
    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Aleksejs Meļihovs & Anna Zasova, 2009. "Assessment of the natural rate of unemployment and capacity utilisation in Latvia," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 9(2), pages 25-46, December.
    2. Ekkehard Ernst & Peter Flaschel & Christian Proano & Willi Semmler, 2006. "Disequilibrium Macroeconomic Dynamics, Income Distribution and Wage-Price Phillips Curves," IMK Working Paper 04-2006, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    3. Christian Dreger & Hans-Eggert Reimers, 2009. "Hysteresis in the development of unemployment: the EU and US experience," Spanish Economic Review, Springer, vol. 11(4), pages 267-276, December.
    4. Mabrouk Chetouane & Matthieu Lemoine & Marie-Elisabeth de la Serve, 2011. "Impact de la crise sur la croissance potentielle. Une approche par les modèles à composantes inobservables," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 89-112.
    5. Christophe Planas & Werner Roeger & Alessandro Rossi, 2003. "How much has labour taxation contributed to European structural unemployment?," European Economy - Economic Papers 183, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    6. Konstantins Benkovskis & Dainis Stikuts, 2006. "Latvia's Macroeconomic Model," Working Papers 2006/02, Latvijas Banka.
    7. Lemoine, M. & de la Serve, M.E. & Chetouane, M., 2011. "Impact of the crisis on potential growth: An approach based on unobserved component models (in french)," Working papers 331, Banque de France.
    8. Aleksejs Melihovs & Anna Zasova, 2007. "Estimation of the Phillips Curve for Latvia," Working Papers 2007/03, Latvijas Banka.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20050441

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.