The long-run Phillips curve revisited: Is the NAIRU framework data-consistent? (with Jürgen Wolters

Published in the "Journal of Macroeconomics", 2007, vol. 29, pp. 355-367.

Keywords: NAIRU, Phillips curve, cointegration, VECM impulse response analysis

Download: This paper grew out of Free University Berlin discussion paper 2002/08 (with a different title) which was presented at the 2002 Econometric Society European Meeting (ESEM). Slightly outdated version February 2005

Abstract: For the estimation of constant as well as time-varying NAIRUs it is customary to assume -sometimes implicitly- that the long-run Phillips curve is vertical. We point out that the observed data often do not possess the stochastic properties that are needed to impose this restriction, especially when unemployment is non-stationary. Using Germany as a prototypical example, we apply a VAR cointegration analysis and find a negative long-run Phillips curve relation between inflation and unemployment which is robust with respect to variations of the specification. The dynamic interactions indicate that real forces drive the system in the long run, such that the results are compatible with standard economic models.

(Latest update: October 2017)