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Unemployment and inflation persistence in Spain: Are there Phillips trade-offs?

Author

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  • Juan J. Dolado

    () (Departamento de Economía, Universidad Carlos III de Madrid, c/ Madrid 126, 28903 Getafe , Spain Research Departament, Banco de Espa na, c/ Alcalá 50, 28014 Madrid, Spain Research Department, European Central Bank, Kaisserstraße 29, 60311 Frankfurt, Germany)

  • J. David López-Salido

    () (Departamento de Economía, Universidad Carlos III de Madrid, c/ Madrid 126, 28903 Getafe , Spain Research Departament, Banco de Espa na, c/ Alcalá 50, 28014 Madrid, Spain Research Department, European Central Bank, Kaisserstraße 29, 60311 Frankfurt, Germany)

  • Juan L. Vega

    () (Departamento de Economía, Universidad Carlos III de Madrid, c/ Madrid 126, 28903 Getafe , Spain Research Departament, Banco de Espa na, c/ Alcalá 50, 28014 Madrid, Spain Research Department, European Central Bank, Kaisserstraße 29, 60311 Frankfurt, Germany)

Abstract

This paper studies the dynamic behavior of inflation and unemployment in Spain during the period 1964-1997. In particular, we analyze the implications of high persistence in both unemployment and inflation dynamics for inference regarding the size of Phillips trade-offs and sacrifice ratios in the Spanish economy, in response to a demand shock. To do so we use a Stuctural VAR approach with several identification outlines which give rise to alternative interpretations of the joint unemployment-inflation dynamics. When using a bivariate VAR we cannot reject the existence of a permanent output loss of one-half of one percentage point for each percentage point of permanent disinflation. However, when the VAR is augmented with a third variable, in order to disentangle monetary from non-monetary shocks within the demand class, the evidence favours a lower and marginally permanent trade-off with an output loss of about one-fourth of one percentage point.

Suggested Citation

  • Juan J. Dolado & J. David López-Salido & Juan L. Vega, 2000. "Unemployment and inflation persistence in Spain: Are there Phillips trade-offs?," Spanish Economic Review, Springer;Spanish Economic Association, vol. 2(3), pages 267-291.
  • Handle: RePEc:spr:specre:v:2:y:2000:i:3:p:267-291
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    Citations

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    Cited by:

    1. Ángel Estrada & Ignacio Hernando & J. David López-Salido, 2000. "Measuring the NAIRU in the Spanish Economy," Working Papers 0009, Banco de España;Working Papers Homepage.
    2. Marika Karanassou & Hector Sala & Dennis J. Snower, 2010. "Phillips Curves And Unemployment Dynamics: A Critique And A Holistic Perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 1-51, February.
    3. José Francisco Bellod Redondo, 2007. "La Curva De Phillips Y La Crítica De Friedman," Contribuciones a la Economía, Grupo Eumed.net (Universidad de Málaga), issue 2007-12, December.
    4. Pedro José Pérez Vázquez, 2003. "Fuentes de variabilidad en las principales economías occidentales," Investigaciones Economicas, Fundación SEPI, vol. 27(3), pages 565-591, September.

    More about this item

    Keywords

    Phillips trade-offs; sacrifice ratios; vector autoregressions; shocks;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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