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Phillips Curve and the Equilibrium Unemployment Rate

  • G.C. LIM
  • ROBERT DIXON
  • SARANTIS TSIAPLIAS

A time-varying Phillips Curve was estimated as a means to examine the changing nature of the relationship between wage inflation and the unemployment rate in Australia. The implied time-varying equilibrium unemployment rate was generated and the analysis showed the important role played by variations in the slope of the Phillips Curve in changing the equilibrium unemployment rate. The deviations of actual unemployment rates from the estimated equilibrium unemployment rates also performed remarkably well as measures of inflationary pressure. Copyright © 2009 The Economic Society of Australia.

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Article provided by The Economic Society of Australia in its journal Economic Record.

Volume (Year): 85 (2009)
Issue (Month): 271 (December)
Pages: 371-382

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Handle: RePEc:bla:ecorec:v:85:y:2009:i:271:p:371-382
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  1. Wallis, K.F., 1992. "On Macroeconomic Policy and Macroeconometric Models," CEPR Discussion Papers 264, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  2. Guy Debelle & James Vickery, 1997. "Is the Phillips Curve a Curve? Some Evidence and Implications for Australia," RBA Research Discussion Papers rdp9706, Reserve Bank of Australia.
  3. David Gruen & Adrian Pagan & Christopher Thompson, 1999. "The Phillips Curve in Australia," RBA Research Discussion Papers rdp1999-01, Reserve Bank of Australia.
  4. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  5. Steven Kennedy & Nghi Luu & Anthony Goldbloom, 2008. "Examining Full Employment in Australia Using the Phillips and Beveridge Curves," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 41(3), pages 286-297, 09.
  6. Grosby, M. & Olekalns, N., 1996. "Inflation, Unemployment and the NAIRU in Australia," Papers 96/31, New South Wales - School of Economics.
  7. Joseph Stiglitz, 1997. "Reflections on the Natural Rate Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 3-10, Winter.
  8. Michael Parkin, 1973. "The Short Run and Long Run Trade-offs between Inflation and Unemployment in Australia," RBA Research Discussion Papers rdp31, Reserve Bank of Australia.
  9. Grubb, David B. & Jackman, Richard & Layard, Richard, 1983. "Wage rigidity and unemployment in OECD countries," European Economic Review, Elsevier, vol. 21(1-2), pages 11-39.
  10. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June.
  11. Lipsey, Richard G, 1974. "The Micro Theory of the Phillips Curve Reconsidered: A Reply to Holmes and Smyth," Economica, London School of Economics and Political Science, vol. 41(161), pages 62-70, February.
  12. Robert Dixon & John Freebairn & G. C. Lim, 2006. "Time-Varying Equilibrium Rates of Unemployment: An Analysis with Australian Data," Melbourne Institute Working Paper Series wp2006n11, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  13. Jeff Borland & Ian McDonald, 2000. "Labour Market Models of Unemployment in Australia," Melbourne Institute Working Paper Series wp2000n15, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  14. Breitung, Jorg, 2002. "Nonparametric tests for unit roots and cointegration," Journal of Econometrics, Elsevier, vol. 108(2), pages 343-363, June.
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