Empirical Evidence on Inflation and Unemployment in the Long Run
Haug, Alfred A; King, Ian P
We examine the relationship between inflation and unemployment in the long run, using quarterly US data from 1952 to 2010. Using a band-pass filter approach, we find strong evidence that a positive relationship exists, where inflation leads unemployment by some 3 to 3 ½ years, in cycles that last from 8 to 25 or 50 years. Our statistical approach is atheoretical in nature, but provides evidence in accordance with the predictions of Friedman (1977) and the recent New Monetarist model of Berentsen, Menzio, and Wright (2011): the relationship between inflation and unemployment is positive in the long run.
Publisher: University of Otago
Series number: 1109
Keywords: Inflation; Unemployment; Long-run Phillips Curve
Research Type: Discussion Paper