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The long-run Phillips curve and non-stationary inflation

  • Russell, Bill
  • Banerjee, Anindya

Modern theories of inflation incorporate a vertical long-run Phillips curve and are usually estimated using techniques that ignore the non-stationary behaviour of inflation. Consequently, the estimates obtained are imprecise and unable to test the veracity of a vertical long-run Phillips curve. We estimate a Phillips curve model taking into account the non-stationary properties in inflation and identify a small but significant positive relationship between inflation and unemployment. The results also provide some evidence that the trade-off between inflation and the rate of unemployment in the short-run worsens as the mean rate of inflation increases.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 30 (2008)
Issue (Month): 4 (December)
Pages: 1792-1815

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Handle: RePEc:eee:jmacro:v:30:y:2008:i:4:p:1792-1815
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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