Testing of Phillips Curve in the Us Economy

In: Business and Management

Submitted By Surbhi
Words 561
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Testing Phillips Curve in long run in the US Economy

Introduction:
Phillips curve is one of the most startling observations made in economics and gained much popularity in 1960s. The inverse relationship between unemployment rate and inflation rate was first observed by William Phillips in 1958 in his study on British economy during the period 1861-1957. For many years this relationship has been used by policy makers to target unemployment and inflation levels. However, in recent times there are various doubts emerging to this concept as there are cases studied where the trade off between unemployment rate and inflation rate can be observed in the long run thus rendering this concept entirely short run in nature? (Phillips, A.W. cited in Ogbokor, 2005).It would be crucial yet interesting to test the validity of traditional long run Phillips curve as it used as a policy guideline and has had many controversies revolving around it for the same.

Objective:
Phillips Curve in the Long run: Examining the Long run relationship between unemployment rate and inflation rate in United States using univariate analysis (analysis based on descriptive statistics).

Methodology:
The data used for analysis has 58 observations collected over the period 1952-2008 consisting unemployment rate and inflation rate of US. It has been collected from Bureau of Labour Statistics and Measuringworth.com.
We will make use of statistical tools to test the existence of relationship, if any, between the two variables using the t-statistic and descriptive statistics.

Analysis:
Unemployment rate and Inflation rate of the US Economy over period 1952-2009: Looking at the above graphs, we see that over the years in the long run, unemployment rate and inflation rate have followed the same…...

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