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Unemployment, Disequilibrium and the Short Run Phillips Curve: An Econometric Approach


  • Quandt, Richard E
  • Rosen, Harvey S


The paper specifies a disequilibrium model for the aggregate labor market consisting of demand and supply functions for labor, an adjustment equation for wages as well as for prices, a transactions equation and, finally, an equation that relates measured unemployment to vacancies and to excess demand. The model has a more sophisticated treatment of dynamics than earlier disequilibrium models, and uses measured unemployment as an endogenous variable. Two of the error terms are assumed to be serially correlated and the coefficients are estimated by maximum likelihood. The parameter estimates and the goodness-of-fit are satisfactory and the model's implications for the behavior of several important variables are sensible. Excess demand estimates computed in various ways are reasonable. The model is used to estimate the natural rate of unemployment as well as a short run Phillips curve. Finally, the stability properties ofthe model are analyzed by considering the eigenvalues of the system; they are found to have moduli less than one.
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Suggested Citation

  • Quandt, Richard E & Rosen, Harvey S, 1986. "Unemployment, Disequilibrium and the Short Run Phillips Curve: An Econometric Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(3), pages 235-253, July.
  • Handle: RePEc:jae:japmet:v:1:y:1986:i:3:p:235-53

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    References listed on IDEAS

    1. Laffont, Jean-Jacques & Monfort, Alain, 1979. "Disequilibrium econometrics in dynamic models," Journal of Econometrics, Elsevier, vol. 11(2-3), pages 353-361.
    2. Barro, Robert J & Sahasakul, Chaipat, 1983. "Measuring the Average Marginal Tax Rate from the Individual Income Tax," The Journal of Business, University of Chicago Press, vol. 56(4), pages 419-452, October.
    3. Stiglitz, Joseph E, 1985. "Equilibrium Wage Distribution," Economic Journal, Royal Economic Society, vol. 95(379), pages 595-618, September.
    4. Joseph G. Altonji, 1982. "The Intertemporal Substitution Model of Labour Market Fluctuations: An Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 49(5), pages 783-824.
    5. Burkett, John P., 1981. "Marginal and conditional probabilities of excess demand," Economics Letters, Elsevier, vol. 8(2), pages 159-162.
    6. Sarantis, Nicholas C., 1981. "Employment, labor supply and real wages in market disequilibrium," Journal of Macroeconomics, Elsevier, vol. 3(3), pages 335-354.
    7. Vassilis A. Hajivassiliou, 1987. "An Aggregative Disequilibrium Model of the U.S. Labour Market," Cowles Foundation Discussion Papers 848, Cowles Foundation for Research in Economics, Yale University.
    8. Quandt, Richard E., 1981. "Autocorrelated errors in simple disequilibrium models," Economics Letters, Elsevier, vol. 7(1), pages 55-61.
    9. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 721-754, Sept./Oct.
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    Cited by:

    1. Quandt, Richard E & Rosen, Harvey S, 1989. "Endogenous Output in an Aggregate Model of the Labor Market," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 394-400, August.
    2. Carmen Aina & Fernanda Mazzotta & Lavinia Parisi, 2010. "Do Flexible Employment Contracts Change Household Income Differences in Italy?," Working Papers 129, SEMEQ Department - Faculty of Economics - University of Eastern Piedmont.
    3. Siebeck, Karin & Reimers, Hans-Eggert, 1987. "Ein einfaches kontinuierliches Anpassungsmodell für den Arbeits- und Gütermarkt: Einige empirische Befunde für die Bundesrepublik Deutschland von 1965 bis 1985," Discussion Papers, Series I 234, University of Konstanz, Department of Economics.

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    JEL classification:

    • D2 - Microeconomics - - Production and Organizations


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