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Clusters and Loops of the German Phillips Curve

Listed author(s):
  • Quaas, Georg
  • Klein, Mathias

A preliminary regression analysis of different versions of the Phillips Curve on the basis of yearly data of the German economy from 1952 to 2004 leads to the conclusion that the original finding might still be of empirical relevance. A simple plot of seasonal adjusted quarterly data between the change of nominal wage rates and the unemployment rate shows a picture similar to that by which Phillips was inspired to his famous discovery: A long-term tendency of a negative, non-linear relationship coupled with minor deviations from this tendency forming sometimes so called loops. At fist sight, the Phillips Curve of Germany comprises clusters of data points and movements between these clusters. The clusters can be analysed and – together with the rest of data – dissolved into 12 (left or right turning) loops and 9 movements between these loops during the period from 1971Q1 to 2009Q4. In spite of the striking differences of these phenomena, a model with one regression equation is sufficient to explain the loops, the movements between the loops and the long-term tendency of the German Phillips Curve. This empirical finding contradicts several aspects with the ruling dogma of a Phillips Curve that broke down in the ‘70s and with the allegedly better fit of its replacements by augmented and modified Phillips Curves.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23094.

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Date of creation: 05 Jun 2010
Handle: RePEc:pra:mprapa:23094
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  1. Parkin, Michael, 1970. "Incomes Policy: Some Further Results on the Determination of the Rate of Change of Money Wages," Economica, London School of Economics and Political Science, vol. 37(148), pages 386-401, November.
  2. Liebling, H I & Cluff, A T, 1969. "U.S. Postwar Inflation and Phillips Curves," Kyklos, Wiley Blackwell, vol. 22(2), pages 232-250.
  3. Gunter Steinmann, 1973. "Lohnentwicklung und beschÄftigungsgrad: Die neuauflage der kontroverse zwischen der keynesschen und der neoklassischen theorie bei der diskussion um die Phillips-kurve," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 109(1), pages 105-120, March.
  4. G. L. Perry, 1964. "The Determinants of Wage Rate Changes and the Inflation-Unemployment Trade-off for the United States," Review of Economic Studies, Oxford University Press, vol. 31(4), pages 287-308.
  5. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678-678.
  6. Lipsey, R G & Parkin, J M, 1970. "Incomes Policy: A Re-appraisal," Economica, London School of Economics and Political Science, vol. 37(146), pages 115-138, May.
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