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Is the Phillips Curve of Germany Spurious?

Author

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  • Quaas, Georg
  • Klein, Mathias

Abstract

A simple plot of seasonal adjusted quarterly data between the change of nominal wage rates and the unemployment rate for the German economy shows a picture similar to that by which Phillips was inspired to his famous discovery, that there is a long-term tendency of a negative, non-linear relationship coupled with minor deviations from this tendency, which form so-called loops. At first sight, the Phillips Curve of Germany comprises clusters of data points and movements between these clusters. In spite of the striking differences of these phenomena, a model with one regression equation is sufficient to explain the loops, the movements between the loops and the long-term tendency of the German Phillips Curve. It might well be that the German Phillips Curve and the corresponding regressions are spurious, but an allegedly missing co-integration of wage rate changes and unemployment rate is not the argument that could be drawn on to sustain this scepticism. On the contrary, both variables are co-integrated. To get a more detailed insight into the relationship, the two variables are split into a trend and a cyclical component by the help of the HP-filter. The results of regression analyses applied to the separated components support Phillips’ hypothesis of a negative relationship between wage rate changes and the unemployment rate.

Suggested Citation

  • Quaas, Georg & Klein, Mathias, 2010. "Is the Phillips Curve of Germany Spurious?," MPRA Paper 26604, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:26604
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    References listed on IDEAS

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    More about this item

    Keywords

    Wages; Unemployment; Phillips Curve;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical

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