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- Title
PHILLIPS CURVES AND UNEMPLOYMENT DYNAMICS: A CRITIQUE AND A HOLISTIC PERSPECTIVE.
- Authors
Karanassou, Marika; Sala, Hector; Snower, Dennis J.
- Abstract
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.
- Subjects
PHILLIPS curve; MATHEMATICAL models of the effect of inflation of unemployment; PRICE inflation; MACROECONOMICS; ECONOMIC policy; ECONOMIC models
- Publication
Journal of Economic Surveys, 2010, Vol 24, Issue 1, p1
- ISSN
0950-0804
- Publication type
Article
- DOI
10.1111/j.1467-6419.2009.00598.x