PHILLIPS CURVES AND UNEMPLOYMENT DYNAMICS: A CRITIQUE AND A HOLISTIC PERSPECTIVE
The conventional wisdom that inflation and unemployment are unrelated in the long run implies the compartmentalization of macroeconomics. While one branch of the literature models inflation dynamics and estimates the unemployment rate compatible with inflation stability, another one determines the r...
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| Veröffentlicht in: | Journal of economic surveys 2010-02, Vol.24 (1), p.1-51 |
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| creator | Karanassou, Marika Sala, Hector Snower, Dennis J. |
| description | The conventional wisdom that inflation and unemployment are unrelated in the long run implies the compartmentalization of macroeconomics. While one branch of the literature models inflation dynamics and estimates the unemployment rate compatible with inflation stability, another one determines the real economic factors that drive the natural rate of unemployment. In the context of the new Phillips curve, we show that frictional growth, i.e. the interplay between lags and growth, generates an inflation–unemployment trade‐off in the long run. We thus argue that a holistic framework, such as the chain reaction theory (CRT), should be used to jointly explain the evolution of inflation and unemployment. A further attraction of the CRT approach is that it provides a synthesis of the traditional structural macroeconometric models and the (structural) vector autoregressions. |
| doi_str_mv | 10.1111/j.1467-6419.2009.00598.x |
| format | Article |
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| source | Wiley Online Library Journals Frontfile Complete; Business Source Complete |
| subjects | Economic conditions Economic theory Frictional growth Impulse response function Inflation Inflation dynamics Inflation-unemployment trade-off Macroecology Macroeconomics Natural rate of unemployment New Phillips curve Phillips curve Regression analysis Studies Unemployment Unemployment dynamics |
| title | PHILLIPS CURVES AND UNEMPLOYMENT DYNAMICS: A CRITIQUE AND A HOLISTIC PERSPECTIVE |
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