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Strain and Inflation-Unemployment Relationship in Transitional Economies: A theoretical and empirical investigation

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  • Albu, Lucian Liviu

Abstract

Standard economic theory tells that a command system, like the former eastern economies, allocates resources poorly due to the impossibility of accurate calculation. Therefore, once prices are freed and start to operate at quasi-equilibrium (market-clearing) levels, the hidden inefficiencies come into the open and a possible massive resource reallocation would have to take place. More precisely, the issue refers to the possible and probable intensity of resource reallocation in view of constraints like the balance between exit and entry in the labour market, the size of the budget deficit and the means for its non-inflationary financing, social and political stability, etc. This paper tries to conceptualise the fact that the dynamics of unemployment and inflation are correlated not in a classical sense but in a very complicated mode that suggests the occurrence of some attractors when certain slow parameters are evolving in the neighbourhood of special threshold-values. The start is made with simple models that are based on empirical data and can show to us the traces to discover the steps of transition in eastern economies on the inflation-unemployment relationship space. Then, using economic theory combined with non-linear modelling more refined information is extracted from the statistical standardised data for to evaluate other faces of the eastern transition.

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Bibliographic Info

Paper provided by Institute for Economic Forecasting in its series Working Papers of Institute for Economic Forecasting with number 081103.

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Length: 55 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:rjr:wpiecf:081103

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Keywords: natural rate of unemployment; potential function; Hurst exponent; pitchfork bifurcation; modified Phillips curve; Rössler attractor;

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References

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  1. Fischer, Edwin O & Jammernegg, Werner, 1986. "Empirical Investigation of a Catastrophe Theory Extension of the Phillips Curve," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 9-17, February.
  2. Santomero, Anthony M & Seater, John J, 1978. "The Inflation-Unemployment Trade-off: A Critique of the Literature," Journal of Economic Literature, American Economic Association, vol. 16(2), pages 499-544, June.
  3. Daianu, Daniel & Albu, Lucian-Liviu, 1996. "Strain and the inflation - unemployment relationship: a conceptual and empirical investigation," MPRA Paper 14017, University Library of Munich, Germany.
  4. Soliman, A. S., 1996. "Transitions from stable equilibrium points to periodic cycles to chaos in a phillips curve system," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 139-153.
  5. B. Mandelbrot, 1972. "Statistical Methodology For Nonperiodic Cycles: From The Covariance To Rs Analysis," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 1, number 3, pages 259-290 National Bureau of Economic Research, Inc.
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Cited by:
  1. Dobrescu, Emilian, 2006. "Integration of macroeconomic behavioural relationships and the input-output block: Romanian modelling experience," MPRA Paper 35748, University Library of Munich, Germany.
  2. Albu, Lucian-Liviu & Diaconescu, Tiberiu, 2009. "Simulation on long-term correlation between demographic variables and economic growth," MPRA Paper 33003, University Library of Munich, Germany.
  3. Albu, Lucian-Liviu, 2005. "A dynamic model to estimate the “pure” productivity," MPRA Paper 13425, University Library of Munich, Germany.
  4. Dobrescu, Emilian, 2006. "Macromodel of the Romanian market economy (version 2005)," MPRA Paper 35749, University Library of Munich, Germany.
  5. Albu, Lucian-Liviu, 2006. "A dynamic model to estimate the long-run trends in potential GDP," MPRA Paper 3708, University Library of Munich, Germany.
  6. Albu, Lucian-Liviu, 2010. "Scenarios for post-crisis period based on a set of presumed changes in the interest rate – investment – GDP growth relationship," MPRA Paper 32753, University Library of Munich, Germany.
  7. Dobrescu, Emilian, 2004. "Double conditioned potential output," MPRA Paper 35769, University Library of Munich, Germany.
  8. Albu, Lucian Liviu, 2006. "Trends in the Interest Rate - Investment - GDP Growth Relationship," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 3(3), pages 5-13, September.

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