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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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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 1 (1986)
Issue (Month): 3 (July)
Pages: 235-53

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Handle: RePEc:jae:japmet:v:1:y:1986:i:3:p:235-53
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  1. Laffont, Jean-Jacques & Monfort, Alain, 1979. "Disequilibrium econometrics in dynamic models," Journal of Econometrics, Elsevier, vol. 11(2-3), pages 353-361.
  2. Robert J. Barro & Chaipat Sahasakul, 1983. "Measuring the Average Marginal Tax Rate from the Individual Income Tax," NBER Working Papers 1060, National Bureau of Economic Research, Inc.
  3. Joseph E. Stiglitz, 1984. "Equilibrium Wage Distributions," NBER Working Papers 1337, National Bureau of Economic Research, Inc.
  4. Quandt, Richard E., 1981. "Autocorrelated errors in simple disequilibrium models," Economics Letters, Elsevier, vol. 7(1), pages 55-61.
  5. Sarantis, Nicholas C., 1981. "Employment, labor supply and real wages in market disequilibrium," Journal of Macroeconomics, Elsevier, vol. 3(3), pages 335-354.
  6. Altonji, Joseph G, 1982. "The Intertemporal Substitution Model of Labour Market Fluctuations: An Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 49(5), pages 783-824, Special I.
  7. Burkett, John P., 1981. "Marginal and conditional probabilities of excess demand," Economics Letters, Elsevier, vol. 8(2), pages 159-162.
  8. 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.
  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 721-54, Sept./Oct.
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