Abstract
Many OECD countries are facing problems of high government debt and high unemployment. Consequently, a monetary stimulus is being increasingly viewed as a solution to curb the rising debt burden and stimulate economic growth. Some OECD countries are setting inflation target at 2% or even higher. In this paper we investigate the likely impact of inflation on unemployment for a panel of 10 highincome OECD countries, namely, Australia, Denmark, Iceland, Japan, Korea, New Zealand, Norway, Sweden, Switzerland and the United States. The period of study is 1970-2012. Results indicate a significantly positive long-run impact of inflation on unemployment. Granger causality indicates long-run bi-directional causality between inflation and unemployment. For the 10 OECD countries and the period of this study, the empirical findings support the Lucas critique: inflation and unemployment are positively correlated. A monetary stimulus, therefore, will most likely aggravate the unemployment scenario in the 10 OCED countries under study.
Keywords
- Inflation Search this journal for Inflation (opens in a new tab)
- Unemployment Search this journal for Unemployment (opens in a new tab)
- Unit Root Tests Search this journal for Unit Root Tests (opens in a new tab)
- Cointegration Search this journal for Cointegration (opens in a new tab)
- Granger Causality Search this journal for Granger Causality (opens in a new tab)
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Copyright (c) 2013 Md. Sharif Hossain, Rajarshi Mitra (Author)
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Keywords
- Inflation Search this journal for Inflation (opens in a new tab)
- Unemployment Search this journal for Unemployment (opens in a new tab)
- Unit Root Tests Search this journal for Unit Root Tests (opens in a new tab)
- Cointegration Search this journal for Cointegration (opens in a new tab)
- Granger Causality Search this journal for Granger Causality (opens in a new tab)
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Vol. 5 No. 4 (2013)
SME Digital Adoption, Policy & Macroeconomic Dynamics
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