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Empirical Evidence on Inflation and Unemployment in the Long Run

  • Alfred A. Haug
  • Ian P. King

We examine the relationship between inflation and unemployment in the long run,using quarterly US data from 1952 to 2010. Using a band-pass filter approach, we find strong evidence that a positive relationship exists, where inflation leads unemployment by some 3 to 3.5 years, in cycles that last from 8 to 25 or 50 years. Our statistical approach is atheoretical in nature, but provides evidence in accordance with the predictions of Friedman (1977) and the recent New Monetarist model of Berentsen, Menzio, and Wright (2011): the relationship between inflation and unemployment is positive in the long run.

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Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1128.

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Length: 31 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:mlb:wpaper:1128
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  12. Laurence Ball, 1998. "Another Look at Long-Run Money Demand," NBER Working Papers 6597, National Bureau of Economic Research, Inc.
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  25. Matthew Doyle & Barry Falk, 2008. "Testing Commitment Models of Monetary Policy: Evidence from OECD Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2-3), pages 409-425, 03.
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