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The Phillips Curve, Macroeconomic Policy, and the Welfare of Canadians

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  • Pierre Fortin

Abstract

A review of the two competing paradigms explaining inflation and unemployment fluctuations singles out the Keynesian Phillips curve as the clear empirical winner over its classic competitors. Reestimation of the Canadian Phillips curve for 1957-90 identifies a sharp structural shift toward a high degree of unemployment hysteresis after 1972. The recent attempt of macropolicy to flatten the aggregate demand curve and limit supply-side shock accommodation, which aims at lower and more stable inflation, is then shown to make unemployment higher and more unstable on average, to an extent that is an increasing function of the degree of hysteresis. Understanding and reducing hysteresis and developing a consensus-based incomes policy that has a chance of alleviating the dismal trade-off should therefore to top research and policy priorities.

Suggested Citation

  • Pierre Fortin, 1991. "The Phillips Curve, Macroeconomic Policy, and the Welfare of Canadians," Canadian Journal of Economics, Canadian Economics Association, vol. 24(4), pages 774-803, November.
  • Handle: RePEc:cje:issued:v:24:y:1991:i:4:p:774-803
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    Cited by:

    1. Marina Capparucci & Emanuela Ghignoni & Alina Verashchagina & Natalia Vorozhbit, 2015. "The Drivers of Innovation in the Italian Manufacturing Sector," Economia & lavoro, Carocci editore, issue 3, pages 111-128.
    2. David Laidler & William B.P. Robson, 2004. "Two Percent Target: The Context, Theory, and Practice of Canadian Monetary Policy since 1991," C.D. Howe Institute Policy Studies, C.D. Howe Institute, number 20041, January.
    3. Stephen S. Poloz, "undated". "The Causes of Unemployment in Canada: A Review of the Evidence," Staff Working Papers 94-11, Bank of Canada.
    4. Ossama Mikhail & Curtis J. Eberwein & Jagdish Handa, 2003. "The Measurement of Persistence and Hysteresis in Aggregate Unemployment," Method and Hist of Econ Thought 0311002, EconWPA.
    5. Faruqui, Umar Ahmed, 2000. "Employment Effects Of Nominal-Wage Rigidity: An Examination Using Wage-Settlements Data," Staff Working Papers 00-14, Bank of Canada.
    6. Seamus, Hogan & Pichette, Lise, 2000. "Some Explorations, Using Canadian Data, of the S-Variable in Akerlof, Dickens, and Perry (1996)," Staff Working Papers 00-6, Bank of Canada.
    7. Stephen S. Poloz, 1995. "The Causes of Unemployment in Canada: A Review of the Evidence," Macroeconomics 9502002, EconWPA.
    8. Ouyang, Ming & Zhou, Dongsheng & Zhou, Nan, 2002. "Estimating marketing persistence on sales of consumer durables in China," Journal of Business Research, Elsevier, vol. 55(4), pages 337-342, April.
    9. Leeper, Eric M., 1997. "Narrative and VAR approaches to monetary policy: Common identification problems," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 641-657, December.
    10. Ossama Mikhail & Curtis J. Eberwein & Jagdish Handa, 2003. "Testing and Estimating Persistence in Canadian Unemployment," Econometrics 0311004, EconWPA.
    11. Robert A. Amano & Tony S. Wirjanto, "undated". "An Empirical Investigation into Government Spending and Private Sector Behaviour," Staff Working Papers 94-8, Bank of Canada.
    12. Gordon Wilkinson, 1997. "A Micro Approach to the Issue of Hysteresis in Unemployment: Evidence from the 1988­1990 Labour Market Activity Survey," Staff Working Papers 97-12, Bank of Canada.
    13. Craig Ebert, 1994. "Defining price stability: what should we aim for?," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 57, March.
    14. Wimanda, Rizki E. & Turner, Paul M. & Hall, Maximilian J.B., 2011. "Expectations and the inertia of inflation: The case of Indonesia," Journal of Policy Modeling, Elsevier, vol. 33(3), pages 426-438, May.

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