The Phillips Curve is Back? Using Panel Data to Analyze the Relationship between Unemployment and Inflation in an Open Economy

29 Pages Posted: 11 Feb 2000 Last revised: 13 Oct 2010

See all articles by John E. DiNardo

John E. DiNardo

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; National Bureau of Economic Research (NBER)

Mark Moore

University of California - Irvine

Date Written: August 1999

Abstract

Expanding on an approach suggested by Ashenfelter (1984), we extend the Phillips curve to an open economy and exploit panel data to estimate the textbook 'expectations augmented' Phillips curve with a market-based and observable measure of inflation expectations. We develop this measure using assumptions common in economic analysis of open economies. Using quarterly data from 9 OECD countries and the simplest econometric specification, we estimate the Phillips curve with the same functional form for the 1970s, 1980s, and 1990s. Our analysis suggests that although changing expectations played a role in creating the empirical failure of the Phillips Curve in the 1970s, supply shocks were at least as important.

Suggested Citation

DiNardo, John and Moore, Mark P., The Phillips Curve is Back? Using Panel Data to Analyze the Relationship between Unemployment and Inflation in an Open Economy (August 1999). NBER Working Paper No. w7328, Available at SSRN: https://ssrn.com/abstract=196390

John DiNardo (Contact Author)

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

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Mark P. Moore

University of California - Irvine ( email )

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