IDEAS home Printed from https://ideas.repec.org/a/ris/ecoint/0613.html
   My bibliography  Save this article

The Inflation-Unemployment Trade-off and the Significance of the Interest Rate: Some Evidence from United States Data from 1939 through 2007 - Il trade-off tra disoccupazione e inflazione e il ruolo del tasso di interesse: evidenze dagli USA nel periodo 1939-2007

Author

Listed:
  • Chen, Tao

    () (Open University of Hong Kong, Lee Shau Kee School of Business Administration)

  • Gentle, Paul F.

    () (University of Architecture and Technology Xi’an)

Abstract

This article argues that any empirical study on the inflation-unemployment trade-off requires the inclusion of the real interest rate in the model as any changes in the interest rate affects the capital used by the firms and thus leads to an effect on the level of employment in the economy. To test the validity of this argument, an empirical model is developed which includes the real interest rate as one of the explanatory variables in addition to inflation and real wages. The model is estimated using the annual time series data from the United States for the period from 1939 through 2007, which is available from Gordon (2009a) and the U.S. Bureau of Labor Statistics. The estimated results indicate that the interest rate variable is indeed significant in explaining the Phillips Curve. - Questo articolo argomenta che qualunque studio empirico sul trade-off tra disoccupazione e inflazione richiede l’inclusione del tasso di interesse reale, poiché qualunque modifica nei tassi di interesse influenza la quantità di capitale utilizzato e, di conseguenza, i livelli occupazionali. Per verificare questa affermazione viene sviluppato un modello empirico che include anche il tasso d’interesse reale come variabile esplicativa, oltre a inflazione e salari. Tale modello viene stimato utilizzando dati annuali per gli USA nel periodo 1939-2007. I risultati evidenziano che la variabile tasso d’interesse è realmente significativa per spiegare la curva di Phillips.

Suggested Citation

  • Chen, Tao & Gentle, Paul F., 2011. "The Inflation-Unemployment Trade-off and the Significance of the Interest Rate: Some Evidence from United States Data from 1939 through 2007 - Il trade-off tra disoccupazione e inflazione e il ruolo d," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 64(2), pages 153-171.
  • Handle: RePEc:ris:ecoint:0613
    as

    Download full text from publisher

    File URL: http://www.iei1946.it/RePEc/ccg/CHEN%20GENTLE%20153_171.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Gordon, Robert J, 1990. "What Is New-Keynesian Economics?," Journal of Economic Literature, American Economic Association, vol. 28(3), pages 1115-1171, September.
    2. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    3. Christopher J. Erceg & Michael D. Bordo & Charles L. Evans, 2000. "Money, Sticky Wages, and the Great Depression," American Economic Review, American Economic Association, vol. 90(5), pages 1447-1463, December.
    4. Sargent, Thomas J. & Wallace, Neil, 1976. "Rational expectations and the theory of economic policy," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 169-183, April.
    5. repec:hrv:faseco:33907956 is not listed on IDEAS
    6. Mikhail Golosov & Robert E. Lucas Jr., 2007. "Menu Costs and Phillips Curves," Journal of Political Economy, University of Chicago Press, vol. 115, pages 171-199.
    7. Mankiw, N. Gregory & Reis, Ricardo, 2010. "Imperfect Information and Aggregate Supply," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 5, pages 183-229 Elsevier.
    8. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, April.
    9. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-472, June.
    10. François R. Velde, 2009. "The recession of 1937 - a cautionary tale," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 16-37.
    11. Don Bellante & Roger W. Garrison, 1988. "Phillips Curves and Hayekian Triangles: Two Perspectives on Monetary Dynamics," History of Political Economy, Duke University Press, vol. 20(2), pages 207-234, Summer.
    12. N. Gregory Mankiw, 1993. "Symposium on Keynesian Economics Today," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 3-4, Winter.
    13. Meltzer, Allan H., 1976. "Monetary and other explanations of the start of the great depression," Journal of Monetary Economics, Elsevier, vol. 2(4), pages 455-471, November.
    14. Perry, George L, 1986. "Shifting Wage Norms and Their Implications," American Economic Review, American Economic Association, vol. 76(2), pages 245-248, May.
    15. Paul Gentle & Krishna Paudel & Kamal Upadhyaya, 2005. "Real wages, real interest rates, and the Phillips curve," Applied Economics, Taylor & Francis Journals, vol. 37(4), pages 397-402.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Phillips Curve; Short Run; Long Run; Aggregate Supply Curve; United States of America Economic History;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:ecoint:0613. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Angela Procopio). General contact details of provider: http://edirc.repec.org/data/cacogit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.