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The Phillips Curve is Back? Using Panel Data to Analyze the Relationship Between Unemployment and Inflation in an Open Economy

  • John DiNardo
  • Mark P. Moore

Expanding on an approach suggested by Ashenfelter (1984), we extend the Phillips curve to an open economy and exploit panel data to estimate the textbook 'expectations augmented' Phillips curve with a market-based and observable measure of inflation expectations. We develop this measure using assumptions common in economic analysis of open economies. Using quarterly data from 9 OECD countries and the simplest econometric specification, we estimate the Phillips curve with the same functional form for the 1970s, 1980s, and 1990s. Our analysis suggests that although changing expectations played a role in creating the empirical failure of the Phillips Curve in the 1970s, supply shocks were at least as important.

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File URL: http://www.nber.org/papers/w7328.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7328.

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Date of creation: Aug 1999
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Handle: RePEc:nbr:nberwo:7328
Note: LS
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  1. Robert G. King & Mark W. Watson, 1994. "The post-war U.S. Phillips curve: a revisionist econometric history," Working Paper Series, Macroeconomic Issues 94-14, Federal Reserve Bank of Chicago.
  2. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  3. Robert E. Lucas, Jr. & Thomas J. Sargent, 1979. "After Keynesian macroeconomics," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
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