Author

  • Md. Sharif Hossain

    • University of Dhaka, Dhaka, Bangladesh
    • Bangladesh

  • Rajarshi Mitra

    • Kyushu University, Higashi-ku, Fukuoka-shi, Japan
    • Japan

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

References

  • Berentsen, A., Menzio, G. & Wright, R. (2008). Inflation and unemployment in the end. Working Paper 13924, National Bureau of Economic Research.
  • Beyer, A. & Farmer, R. E. (2007). Natural rate doubts. Journal of Economic Dynamics and Control, 31(3), 797–825.
  • Choi, I. (2006). Combination Unit Root Tests for Cross-Sectionally Correlated Panels. Econometric Theory and Practice: Frontiers of Analysis and Applied Research, Cambridge University Press: 311-333.
  • Engle, R. F. & Granger, C. W. J. (1987). Cointegration and Error Correction: Representation, Estimation and Testing. Econometrica , 55(2), 251-276.
  • Franz, W. (2005). Will the (German) NAIRU Please Stand Up? German Economic Review, 6(2), 131–153.
  • Friedman, M. (1968). The Role of Monetary Policy. American Economic Review, 58(1), 1-17.
  • Haq, U., Khan, S., Khan, A. & Ahmed, E. (2012). Phillips Curve or Locus Critique: Time Series Evidence from Pakistan. Journal of Economics and Behavioral Studies , 4(4), 190-193.
  • Im, K., Pesaran, M. H. & Shin, Y. (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics , 115(1), 53-74.
  • Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics , 90(1), 1–44.
  • Karanassou, M., Sala, H. & Snower, D. J. (2003). The European Phillips Curve: Does the nairu exist? IZA Discussion Papers 876, Institute for the Study of Labor (IZA).
  • Levin, A., Lin, C. & Chu, C. J. (2002). Unit Root Tests in Panel Data: Asymptotic and Finite Sample Properties. Journal of Econometrics , 108(1), 1-24.
  • Lucas, R. E. (1976). Econometric Policy Evaluation: A Critique. Carnegie-Rochester Conference Series on Public Policy, 1(1), 19-46.
  • Maddala, G. S. & Wu, S. (1999). A comparative study of unit root tests with panel data and new simple test. Oxford Bulletin of Economics and Statistics , 61(S1), 631-652.
  • Phelps, E. (1967). Phillips Curve, Expectation of Inflation, and Optimal Inflation over Time. Economica, 34(135), 254-281.
  • Phillips, A. W. (1958). The Relationship between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom. Economica, 25, 258-299.
  • Schreiber, S. & Wolters, J. (2007). The long-run Phillips curve revisited: Is the Nairu framework dataconsistent? J ournal of Macroeconomics, 29(2), 355–367.

Downloads

No downloads have been recorded for this article yet. Figures appear here once readers begin downloading the full text.

How to Cite

Hossain, M. S., & Mitra, R. (2013). Revisiting the Phillips Curve and the Lucas Critique. Journal of Economics and Behavioral Studies, 5(4), 221-225. https://doi.org/10.22610/jebs.v5i4.397

Share this article

License

Copyright (c) 2013 Md. Sharif Hossain, Rajarshi Mitra (Author)

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team  edits and formats manuscripts to bring uniformity and standardization in published material.

This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.

Keywords

Section

Research Paper

Published in

Vol. 5 No. 4 (2013) SME Digital Adoption, Policy & Macroeconomic Dynamics View issue contents

Published

2013-04-30

Submissions

Have research to publish? Journal of Economics and Behavioral Studies welcomes submissions.

Make a Submission