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Title:Phillips curves and unemployment dynamics: A critique and a holistic perspective PDF Logo
Authors:Karanassou, Marika
Sala, Héctor
Snower, Dennis J.
Issue Date:2006
Series/Report no.:Working paper series, Department of Economics, Queen Mary College, London 573
Abstract:The conventional wisdom that inflation and unemployment are unrelated in the long-run implies that these phenomena can be analysed by separate branches of economics. The macro literature tries to explain inflation dynamics and estimates the NAIRU. The labour macro literature tries to explain unemployment dynamics and determine the real economic factors that drive the natural rate of unemployment. We show that the orthodox view that the New Keynesian Phillips curve is vertical in the long-run and that it cannot generate substantial inflation persistence relies on the implausible assumption of a zero interest rate. In the light of these results, we argue that a holistic framework is needed to jointly explain the evolution of inflation and unemployment.
Subjects:natural rate of unemployment , NAIRU , New Keynesian Phillips Curve , inflation-unemployment tradeoff , inflation dynamics , unemployment dynamics
JEL:E24
E31
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des IfW
Working Paper Series, School of Economics and Finance, Queen Mary, University of London

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