Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/55178
Authors: 
Karanassou, Marika
Sala, Hector
Year of Publication: 
2009
Series/Report no.: 
Working Paper // School of Economics and Finance, Queen Mary, University of London 647
Abstract: 
This paper adresses the various methodological issues surrounding vector autoregressions, simultaneous equations, and chain reactions, and provides new evidence on the long-run inflation-unemployment tradeoff in the US. It is argued that money growth is a superior indicator of the monetary environment than the federal funds rate and, thus, the focus is on the inflation/unemployment responses to money growth shocks. SVAR (structural vector autoregression) and GMM (generalised method of moments) estimations confirm earlier findings in Karanassou, Sala and Snower (2005, 2008b) obtained from chain reaction structural models: the slope of the US Phillips curve is far from vertical, even in the long-run, which implies that the nominal and real sides of the economy are symbiotic. In the light of the significant and robust long-run inflation-unemployment tradeoffs, policy makers should reconsider the classical dichotomy thesis.
Subjects: 
inflation
unemployment
money growth
SVAR
GMM
structural modelling
chain reactions
JEL: 
E24
E31
E51
Document Type: 
Working Paper

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