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Unemployment and Inflation Persistence in Spain: Are There Phillips Trade-Offs?

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Author Info

  • Dolado, Juan José
  • López-Salido, J. David
  • Vega, Juan L.

Abstract

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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File URL: http://e-archivo.uc3m.es/bitstream/10016/3268/2/unemployment-SER-2000-ps.pdf
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Bibliographic Info

Paper provided by Universidad Carlos III de Madrid in its series Open Access publications from Universidad Carlos III de Madrid with number info:hdl:10016/3268.

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Length: 293 p.
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Handle: RePEc:ner:carlos:info:hdl:10016/3268

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Web page: http://www.uc3m.es

Related research

Keywords: Phillips trade-offs; sacrifice ratios; vector autoregressions; shocks;

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Cited by:
  1. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2007. "The Evolution of Inflation and Unemployment: Explaining the Roaring Nineties," IZA Discussion Papers 2900, Institute for the Study of Labor (IZA).
  2. Marika Karanassou & Hector Sala & Dennis Snower, 2008. "Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective," Kiel Working Papers 1441, Kiel Institute for the World Economy.
  3. Olivier Blanchard & J. F. Jimeno, . "Reducing Spanish unemployment under the EMU," Studies on the Spanish Economy 19, FEDEA.
  4. Ángel Estrada & Ignacio Hernando & J. David López-Salido, 2000. "Measuring the NAIRU in the Spanish Economy," Banco de España Working Papers 0009, Banco de España.
  5. José Francisco Bellod Redondo, 2007. "La Curva De Phillips Y La Crítica De Friedman," Contribuciones a la Economía, Grupo Eumed.net (Universidad de Málaga), issue 2007-12, December.
  6. Pedro José Pérez Vázquez, 2003. "Fuentes de variabilidad en las principales economías occidentales," Investigaciones Economicas, Fundación SEPI, vol. 27(3), pages 565-591, September.

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