The US inflation-unemployment trade-off revisited: New evidence for policy-making

Marika Karanassou, Hector Sala

Research output: Contribution to journalArticleResearchpeer-review

9 Citations (Scopus)

Abstract

This paper addresses 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. Structural vector autoregression (SVAR) and generalised method of moments (GMM) 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. © 2010 Society for Policy Modeling.
Original languageEnglish
Pages (from-to)758-777
JournalJournal of Policy Modeling
Volume32
Issue number6
DOIs
Publication statusPublished - 1 Nov 2010

Keywords

  • Chain reactions
  • GMM
  • Inflation
  • Money growth
  • Structural modelling
  • SVAR
  • Unemployment

Fingerprint Dive into the research topics of 'The US inflation-unemployment trade-off revisited: New evidence for policy-making'. Together they form a unique fingerprint.

Cite this