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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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Cited by:
  1. Aleksander Berentsen & Guido Menzio & Randall Wright, 2009. "Inflation and Unemployment in the Long Run," Kiel Working Papers 1501, Kiel Institute for the World Economy.

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