CFDP 1121

Testing the Standard View of the Long-Run Unemployment-Inflation Relationship


Publication Date: April 1996

Pages: 32


The results in this paper, based on estimating and testing price equations for 30 countries, do not support the standard view of the long-run relationship between unemployment and inflation. They overwhelmingly reject the dynamics implied by the standard view. Wage equations are also estimated and tested. The paper also attempts to estimate the functional form of the relationship between measures of demand pressure and price and wage levels, but no strong conclusions emerge.