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Phillips Curve and the Equalibrium Unemployment Rate

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  • G.C. Lim
  • R. Dixon
  • S. Tsiaplias

Abstract

A time-varying Phillips curve was estimated as a means to examine the changing nature of the relationship between wage inflation and the unemployment rate in Australia. The implied time-varying equilibrium unemployment rate was generated and the analysis showed the important role played by variations in the slope of the Phillips curve in changing the equilibrium unemployment rate. The deviations of actual unemployment rates from the estimated equilibrium unemployment rates also performed remarkedly well as measures of inflationary pressure.

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File URL: http://fbe.unimelb.edu.au/__data/assets/pdf_file/0007/801088/1070.pdf
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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1070.

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Length: 28 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:mlb:wpaper:1070

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Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia
Phone: +61 3 8344 5355
Fax: +61 3 8344 6899
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Web page: http://www.economics.unimelb.edu.au
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Keywords: Phillips curve; equilibrium unemployment rate; inflation;

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References

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  1. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June.
  2. Parkin, Michael, 1973. "The Short-Run and Long-Run Trade-Offs Between Inflation and Unemployment in Australia," Australian Economic Papers, Wiley Blackwell, vol. 12(21), pages 127-44, December.
  3. Breitung, Jorg, 2002. "Nonparametric tests for unit roots and cointegration," Journal of Econometrics, Elsevier, vol. 108(2), pages 343-363, June.
  4. Joseph Stiglitz, 1997. "Reflections on the Natural Rate Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 3-10, Winter.
  5. Crosby, M. & Olekalns, N., 1997. "Inflation, Unemployment and the Nairu in Australia," Department of Economics - Working Papers Series 543, The University of Melbourne.
  6. Robert Dixon & John Freebairn & Guay Lim, 2007. "Time-varying equilibrium rates of unemployment: an analysis with Australian data," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 10(4), pages 205-225, December.
  7. Grubb, David B. & Jackman, Richard & Layard, Richard, 1983. "Wage rigidity and unemployment in OECD countries," European Economic Review, Elsevier, vol. 21(1-2), pages 11-39.
  8. Jeff Borland & Ian McDonald, 2000. "Labour Market Models of Unemployment in Australia," Melbourne Institute Working Paper Series wp2000n15, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  9. Guy Debelle & James Vickery, 1997. "Is the Phillips Curve a Curve? Some Evidence and Implications for Australia," RBA Research Discussion Papers rdp9706, Reserve Bank of Australia.
  10. Lipsey, Richard G, 1974. "The Micro Theory of the Phillips Curve Reconsidered: A Reply to Holmes and Smyth," Economica, London School of Economics and Political Science, vol. 41(161), pages 62-70, February.
  11. Steven Kennedy & Nghi Luu & Anthony Goldbloom, 2008. "Examining Full Employment in Australia Using the Phillips and Beveridge Curves," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 41(3), pages 286-297, 09.
  12. David Gruen & Adrian Pagan & Christopher Thompson, 1999. "The Phillips Curve in Australia," RBA Research Discussion Papers rdp1999-01, Reserve Bank of Australia.
  13. Wallis, Kenneth F, 1993. "On Macroeconomic Policy and Macroeconometric Models," The Economic Record, The Economic Society of Australia, vol. 69(205), pages 113-30, June.
  14. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
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Cited by:
  1. Jared Bullen & Jacinta Greenwell & Michael Kouparitsas & David Muller & John O’Leary & Rhett Wilcox, 2014. "Treasury's medium-term economic projection methodology," Treasury Working Papers 2014-02, Treasury, Australian Government, revised May 2014.
  2. David Norman & Anthony Richards, 2012. "The Forecasting Performance of Single Equation Models of Inflation," The Economic Record, The Economic Society of Australia, vol. 88(280), pages 64-78, 03.

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