Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective

Marika Karanassou (), Hector Sala and Dennis Snower

No 2265, IZA Discussion Papers from Institute of Labor Economics (IZA)

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.

Keywords: unemployment dynamics; inflation-unemployment tradeoff; NAIRU; New Keynesian Phillips Curve; inflation dynamics; natural rate of unemployment (search for similar items in EconPapers)
JEL-codes: E24 E31 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2006-08
New Economics Papers: this item is included in nep-cba, nep-ltv, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Published - published: Journal of Economic Surveys, 2010, 24 (1), 1-51

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Related works:
Journal Article: PHILLIPS CURVES AND UNEMPLOYMENT DYNAMICS: A CRITIQUE AND A HOLISTIC PERSPECTIVE (2010)
Working Paper: Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective (2008)
Working Paper: Phillips Curves and unemployment dynamics: a critique and a holistic perspective (2008)
Working Paper: Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective (2006)
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