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Spanish unemployment and inflation persistence : ares there phillips trade-offs?

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  • López-Salido, J. David
  • Vega, Juan Luis

Abstract

This paper studies the joint dynamic behaviour of inflation and unemployment in Spain during the period 1964-1995. In particular, we analyze the implication of hysteresis and high inflation persistence for inference regarding Phillips trade-offs and sacrifice ratios in the Spanish economy, in response to a demand shock. To do so we use a Structural V AR approach with several identification outlines which give rise to different interpretations of the joint unemploymentinflation dynamics. When using a bivariate VAR we cannot reject the existent of a permanent output loss of half a percentage point for each percentage point of permanent disinflation. However, when the V AR is augmented in order to disentagle monetary from non-monetary shocks, within the demand class, the evidence favours a transitory trade-off with a cumulative output loss of about six percentage points of GDP.

Suggested Citation

  • López-Salido, J. David & Vega, Juan Luis, 1997. "Spanish unemployment and inflation persistence : ares there phillips trade-offs?," UC3M Working papers. Economics 6041, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:6041
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    Cited by:

    1. López Díaz, J., 1999. "Divergencia real en la unión monetaria: Un ejercicio de simulación," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 13, pages 87-100, Diciembre.
    2. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2008. "Long-run inflation-unemployment dynamics: The Spanish Phillips curve and economic policy," Journal of Policy Modeling, Elsevier, vol. 30(2), pages 279-300.
    3. Gottschalk, Jan, 2002. "Keynesian and monetarist views on the German unemployment problem: theory and evidence," Kiel Working Papers 1096, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    Philips trade-offs;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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