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An empirical analysis of the Phillips Curve: A time series exploration of Germany
Linnaeus University, School of Business and Economics, Department of Economics and Statistics.
2013 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

The purpose of the paper is to explore the relationship between inflation and unemployment in Germany during the period from 1970 to 2012. Through the methods of cointegration, dynamic OLS and an error correction model, this paper highlights that there is no short run negative relationship between inflation and unemployment, and consequently the short run Phillips curve is an unsuitable instrument for making political decisions. Furthermore, there is a long run relationship between inflation and unemployment, which can be explained with asymmetric nominal wage rigidities and resulting frictional growth. Resulting policy implications reflect the advantage of a permanent higher inflation target for Germany. Since the beginning of the European Monetary Union, Germany has been on average 0.5% under the permanent inflation target of the central bank. Therefore, by using fiscal policy, Germany can reduce permanent unemployment without missing the inflation target of the central bank. Finally, despite of variety of intensive changes in the macroeconomic situation and particularly through the establishment of the European Monetary Union, the CUSUM and CUSUMsq test reveal that the estimate holds validity over the entire observation period and has not changed since the beginning of the European Monetary Union.

Place, publisher, year, edition, pages
2013. , 26 p.
Keyword [en]
Inflation, Unemployment, Phillips Curve, Cointegration, Error Correction Model
National Category
Economics
Identifiers
URN: urn:nbn:se:lnu:diva-27177OAI: oai:DiVA.org:lnu-27177DiVA: diva2:633286
Subject / course
Economics
Presentation
(English)
Uppsok
Social and Behavioural Science, Law
Supervisors
Examiners
Available from: 2013-06-27 Created: 2013-06-26 Last updated: 2013-06-27Bibliographically approved

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf