Inflation-unemployment tradeoff and regional labor market data | Zendy

Uwe Hassler | Zendy; Michael Neugart | Zendy

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Inflation-unemployment tradeoff and regional labor market data

Author(s) -

Uwe Hassler,

Michael Neugart

Publication year - 2003

Publication title -

empirical economics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.605

H-Index - 56

eISSN - 1435-8921

pISSN - 0377-7332

DOI - 10.1007/s001810200133

Subject(s) - economics , phillips curve , unemployment , endogeneity , inflation (cosmology) , econometrics , piecewise linear function , aggregate demand , supply shock , aggregate data , keynesian economics , monetary policy , macroeconomics , mathematics , statistics , physics , geometry , theoretical physics

We estimate a linear and a piecewise linear Phillips curve model with regional labor market data for West German and Neue Länder. Employing regional observations allows us to country difference the data. This eliminates, under the assumption of homogeneous Länder, supply shocks and changes in the formation of expectations as possible identification failures. With seemingly unrelated regressions we find a flat Phillips curve in the Neue Länder. For the West German Länder a piecewise linear model with a higher inflation-unemployment tradeoff for the regime of low unemployment rates fits the data very well. The results hold true if we control for endogeneity of the unemployment rate. With a kinked but upward sloping aggregate supply curve there seems to be room for stabilization policies, at least in the range of aggregate demand shifts that our data covers. Copyright Springer-Verlag Berlin Heidelberg 2003Key words: inflation-unemployment tradeoff, NAIRU, regional labor market data, seemingly unrelated regression, JEL classification: E24, E31,

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