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Empirical Evidence on Inflation and Unemployment in the Long Run

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  • Alfred A. Haug

    ()
    (Department of Economics, University of Otago)

  • Ian P. King

    ()
    (Department of Economics, University of Melbourne)

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 1/2 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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File URL: http://www.business.otago.ac.nz/econ/research/discussionpapers/DP_1109.pdf
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Bibliographic Info

Paper provided by University of Otago, Department of Economics in its series Working Papers with number 1109.

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Length: 32 pages
Date of creation: Aug 2011
Date of revision: Aug 2011
Handle: RePEc:otg:wpaper:1109

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Keywords: Inflation; Unemployment; Long-Run Phillips Curve;

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References

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  1. Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
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  8. 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.
  9. Mei Dong, 2010. "Inflation and Unemployment in Competitive Search Equilibrium," Working Papers 10-15, Bank of Canada.
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  15. Peter N. Ireland, 1998. "Does the Time-Consistency Problem Explain the Behavior of Inflation in the United States?," Boston College Working Papers in Economics 415, Boston College Department of Economics.
  16. Fisher, Mark E & Seater, John J, 1993. "Long-Run Neutrality and Superneutrality in an ARIMA Framework," American Economic Review, American Economic Association, vol. 83(3), pages 402-15, June.
  17. Barry Z. Cynamon & Donald H. Dutkowsky & Barry E. Jones, 2006. "Redefining the Monetary Agggregates: A Clean Sweep," Eastern Economic Journal, Eastern Economic Association, vol. 32(4), pages 661-672, Fall.
  18. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
  19. Lee, Junsoo & Strazicich, Mark C, 2001. " Break Point Estimation and Spurious Rejections with Endogenous Unit Root Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(5), pages 535-58, December.
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Cited by:
  1. Aleksander Berentsen & Guido Menzio & Randall Wright, 2008. "Inflation and Unemployment in the Long Run," PIER Working Paper Archive 08-012, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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