Comparative Properties of Models of the UK Economy

1990 ◽  
Vol 133 ◽  
pp. 91-115 ◽  
Author(s):  
P.G. Fisher ◽  
D.S. Turner ◽  
K.F. Wallis ◽  
J.D. Whitley
Keyword(s):  
Phillips Curve ◽  
Demand Management ◽  
Nominal Wage ◽  
Natural Rate ◽  
Price Inflation ◽  
Trade Off ◽  
Natural Rate Of Unemployment ◽  
Long Run ◽  
Recent Developments ◽  
The Uk

The nature of the association between inflation and the level of unemployment has been a persistent issue of controversy over the last three decades. Initially, attention focussed on the statistical relationship between nominal wage inflation and unemployment— the Phillips curve—which could be seen equally as a relationship between price inflation and unemployment, if prices are a constant mark-up on wages. This was quickly adopted as a menu for policy choice, describing the trade-off between increases in unemployment and reductions in inflation. By the 1970s, however, the question was whether a long-run trade-off existed at all, the OECD economies having experienced rising unemployment and, simultaneously, rising inflation. The subsequent re-examination of labour market behaviour introduced the concept of an equilibrium rate (the natural rate) of unemployment which, in the monetarist view, was not amenable to demand management policies. More recent developments reflect a growing concern with the supply side of the economy, including the question of what determines the non accelerating inflation rate of unemployment (NAIRU).

scholarly journals Offre globale en économie ouverte, courbe de Phillips et détermination du taux de chômage naturel : une reformulation théorique

2009 ◽  
Vol 55 (3) ◽  
pp. 375-396 ◽  
Author(s):  
Louis Phaneuf
Keyword(s):  
Phillips Curve ◽  
Structural Model ◽  
Reduced Form ◽  
Supply Side ◽  
Special Importance ◽  
Natural Rate ◽  
Explanatory Variables ◽  
Natural Rate Of Unemployment ◽  
Long Run

Criticizing the fact the Phillips curve wage and price equations are usually reduced form or quasi-reduced form equations without an explicit structural model behind, this article is an attempt to provide a supply side based structural model of the Phillips curve. Of special importance are the theoretical specifications of the resulting wage and price equations that include several new explanatory variables and especially policy variables. After having demonstrated under what structural conditions the price-Phillips curve of this model will be a vertical in the long run, the model is solved for the theoretical specification of the natural rate of unemployment.

scholarly journals Market Power, NAIRU, and the Phillips Curve

2020 ◽  
Vol 2020 ◽  
pp. 1-18
Author(s):  
Derek Zweig
Keyword(s):  
Interest Rates ◽  
Phillips Curve ◽  
Functional Form ◽  
The United States ◽  
Medium Term ◽  
Natural Rate ◽  
Natural Rate Of Unemployment ◽  
Long Run ◽  
Weak Evidence ◽  
Short Run

We explore the relationship between unemployment and inflation in the United States (1949-2019) through both Bayesian and spectral lenses. We employ Bayesian vector autoregression (“BVAR”) to expose empirical interrelationships between unemployment, inflation, and interest rates. Generally, we do find short-run behavior consistent with the Phillips curve, though it tends to break down over the longer term. Emphasis is also placed on Phelps’ and Friedman’s NAIRU theory using both a simplistic functional form and BVAR. We find weak evidence supporting the NAIRU theory from the simplistic model, but stronger evidence using BVAR. A wavelet analysis reveals that the short-run NAIRU theory and Phillips curve relationships may be time-dependent, while the long-run relationships are essentially vertical, suggesting instead that each relationship is primarily observed over the medium-term (2-10 years), though the economically significant medium-term region has narrowed in recent decades to roughly 4-7 years. We pay homage to Phillips’ original work, using his functional form to compare potential differences in labor bargaining power attributable to labor scarcity, partitioned by skill level (as defined by educational attainment). We find evidence that the wage Phillips curve is more stable for individuals with higher skill and that higher skilled labor may enjoy a lower natural rate of unemployment.

scholarly journals Should We Reject the Natural Rate Hypothesis?

2018 ◽  
Vol 32 (1) ◽  
pp. 97-120 ◽  
Author(s):  
Olivier Blanchard
Keyword(s):  
Monetary Policy ◽  
Null Hypothesis ◽  
Natural Rate ◽  
Trade Off ◽  
Open Mind ◽  
Milton Friedman ◽  
Natural Rate Of Unemployment ◽  
Long Run

Fifty years ago, Milton Friedman articulated the natural rate hypothesis. It was composed of two sub-hypotheses: First, the natural rate of unemployment is independent of monetary policy. Second, there is no long-run trade-off between the deviation of unemployment from the natural rate and inflation. Both propositions have been challenged. The paper reviews the arguments and the macro and micro evidence against each. It concludes that, in each case, the evidence is suggestive, but not conclusive. Policymakers should keep the natural rate hypothesis as their null hypothesis, but keep an open mind and put some weight on the alternatives.

FRIEDMAN’S NOBEL LECTURE AND THE PHILLIPS CURVE MYTH

2010 ◽  
Vol 32 (3) ◽  
pp. 329-348 ◽  
Author(s):  
JAMES FORDER
Keyword(s):  
Phillips Curve ◽  
Macroeconomic Policy ◽  
Natural Rate ◽  
Nobel Lecture ◽  
Trade Off ◽  
Natural Rate Of Unemployment ◽  
Reasonable Range ◽  
Economics Profession ◽  
Uncritical Acceptance

In his Nobel lecture, Friedman built on his earlier argument for a “natural rate of unemployment” by painting a picture of an economics profession which, as a result of foolish mistakes, had accepted the Phillips curve as offering a lasting trade-off between inflation and unemployment, and was thereby led to advocate a policy of inflation. It is argued here that, in fact, the orthodox economists of the time often did not accept Phillips’ analysis; almost no one made the mistakes in question; and very few advocated inflation on bases vulnerable to Friedman’s theoretical criticisms. The Phillips curve was put to various uses, but advocating inflation was hardly amongst them. It is suggested that one lasting result of the uncritical acceptance of Friedman’s history is to limit what appears to be within the reasonable range of views about macroeconomic policy.

AGGREGATE PHILLIPS CURVES ARE NOT ALWAYS VERTICAL: HETEROGENEITY AND MISMATCH IN MULTIREGION OR MULTISECTOR ECONOMIES

2000 ◽  
Vol 4 (4) ◽  
pp. 534-546 ◽  
Author(s):  
A.J. Hughes Hallett
Keyword(s):  
Labor Markets ◽  
Supply And Demand ◽  
Natural Rate ◽  
Trade Off ◽  
Natural Rate Of Unemployment ◽  
Long Run ◽  
Vertical Heterogeneity ◽  
Equilibrium Level ◽  
Short Run ◽  
The Individual

The aggregation of sectoral or regional Phillips curves yields an inflation–unemployment trade-off that is not vertical in the long run if there are mismatches between supply and demand in the regional or sectoral labor markets. This remains true even when the individual Phillips curves are all vertical. This result stems from variations in the slope of the individual short-run Phillips curves, rather than from changes to the equilibrium level of unemployment. It implies a role for the management of the distribution of demand over different sectors or regions, in order to minimize the natural rate of unemployment.

scholarly journals The time-varying long-run rate of unemployment in Colombia

2019 ◽  
Vol 68 (269) ◽  
Author(s):  
Luis E. Arango ◽  
Carlos E. Posada
Keyword(s):  
Phillips Curve ◽  
Structural Characteristics ◽  
Commodity Markets ◽  
Time Varying ◽  
Classical Approach ◽  
Equilibrium Equations ◽  
Natural Rate ◽  
Natural Rate Of Unemployment ◽  
Long Run ◽  
The Cost

After the failure of the Phillips curve to explain the simultaneous ocurrence of rising inflation  and unemployment, the classical approach to the  theory of unemployment and inflation reemerged (see Friedman 1968; Phelps 1967, 1968). Milton Friedman (1968) defined the natural rate of unemployment as the level that would be ground out by the Walrasian system of general equilibrium equations, provided there is imbedded in them the actual structural characteristics of the labor and commodity markets, including market imperfections, stochastic variability in demand and supplies, the cost of gathering information about job vacancies and labor avialabilities, the cost of mobility, and so on.

scholarly journals Was the Gibson Paradox for real? A Wicksellian study of the relationship between interest rates and prices

2014 ◽  
Vol 21 (2) ◽  
pp. 139-163 ◽  
Author(s):  
Jagjit S. Chadha ◽  
Morris Perlman
Keyword(s):  
Interest Rates ◽  
Positive Relationship ◽  
Formal Model ◽  
Natural Rate ◽  
Market Rate ◽  
Long Run ◽  
Advanced Economies ◽  
The Uk ◽  
Gibson Paradox ◽  
The Relationship

We examine the relationship between prices and interest rates for seven advanced economies in the period up to 1913, emphasising the UK. There is a significant long-run positive relationship between prices and interest rates for the core commodity standard countries. Keynes ([1930] 1971) labelled this positive relationship the ‘Gibson Paradox’. A number of theories have been put forward as possible explanations of the paradox but they do not fit the long-run pattern of the relationship. We find that a formal model in the spirit of Wicksell (1907) and Keynes ([1930] 1971) offers an explanation for the paradox: where the need to stabilise the banking sector's reserve ratio, in the presence of an uncertain ‘natural’ rate, can lead to persistent deviations of the market rate of interest from its ‘natural’ level and consequently long-run swings in the price level.

scholarly journals Inflation and Unemployment Trade-off: Is Phillips Curve True for African Developing Countries? Evidence from Sudan

2021 ◽  
Vol 4 (3) ◽  
Author(s):  
Omer Allagabo Omer Mustafa
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Phillips Curve ◽  
Economic Thought ◽  
Trade Off ◽  
Long Run ◽  
Short Run ◽  
Wage Inflation ◽  
The Relationship

The relationship between wage inflation and unemployment (Phillips Curve) is controversial in economic thought, and the controversy is centered around whether there is always a trade-off or not. If this relationship is negative it is called The short-run Fillips Curve. However, in the long run, this relationship may probable not exist. The matter of how inflation and unemployment influence economic growth, is debatably among macroeconomic policymakers. This study examines the behavior of the Phillips Curve in Sudan and its effect on economic growth.

scholarly journals Recovering Keynesian Phillips curve theory: hysteresis of ideas and the natural rate of unemployment

2018 ◽  
Vol 6 (4) ◽  
pp. 473-492 ◽  
Author(s):  
Thomas Palley
Keyword(s):  
Economic Theory ◽  
Phillips Curve ◽  
50Th Anniversary ◽  
Theoretical Argument ◽  
Natural Rate ◽  
Macroeconomic Theory ◽  
Natural Rate Of Unemployment ◽  
Economics Profession ◽  
Curve Theory

Economic theory is prone to hysteresis. Once an idea is adopted, it is difficult to change. In the 1970s, the economics profession abandoned the Keynesian Phillips curve and adopted Milton Friedman's natural rate of unemployment (NRU) hypothesis. The shift was facilitated by a series of lucky breaks. Despite much evidence against the NRU, and much evidence and theoretical argument supportive of the Keynesian Phillips curve, the NRU hypothesis remains ascendant. The hypothesis has had an enormous impact on macroeconomic theory and policy. 2018 is the 50th anniversary of Friedman's introduction of the NRU hypothesis. The anniversary offers an opportunity to challenge rather than celebrate it.

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