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Empirical Evidence on Inflation and Unemployment in the Long Run

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  • Alfred A. Haug
  • Ian P. King

Abstract

We examine the relationship between inflation and unemployment in the long run,using quarterly US data from 1952 to 2010. Using a band-pass filter approach, we find strong evidence that a positive relationship exists, where inflation leads unemployment by some 3 to 3.5 years, in cycles that last from 8 to 25 or 50 years. Our statistical approach is atheoretical in nature, but provides evidence in accordance with the predictions of Friedman (1977) and the recent New Monetarist model of Berentsen, Menzio, and Wright (2011): the relationship between inflation and unemployment is positive in the long run.

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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1128.

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Length: 31 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:mlb:wpaper:1128

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Postal: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia
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Web page: http://www.economics.unimelb.edu.au
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Keywords: Inflation; Unemployment; Long-Run Phillips Curve;

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Cited by:
  1. Aleksander Berentsen & Guido Menzio & Randall Wright, 2011. "Inflation and Unemployment in the Long Run," American Economic Review, American Economic Association, vol. 101(1), pages 371-98, February.

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