Question

In: Economics

The authors claim that national data are unlikely to provide evidence for or against a Phillips...

The authors claim that national data are unlikely to provide evidence for or against a Phillips Curve. Carefully explain why this is (in your own words, of course).

Solutions

Expert Solution

An inverse relationship among inflation and unemployment with in an economy is referred to as Philips curve .

once a mobile central bank is included in the analysis, we can clearly notify that national data comprising unemployment and inflation are not helpful for identifying whether a Philips curve connection exists or not. we prefer regional data on inflation and unemployment to account for the problems faced by a central bank.

Philips curve is suggested as a helpful connection because the key measures of economic performance are inflation and unemployment.

Modern Philips curve states that the inflation is controlled mainly by three forces

* Expected inflation

* Unemployment deviation from its natural rate

*Supply shocks

So from data analysis, we can say that approximations of Philips curve trade off are balanced within the same multidecade period and provides a compatible negative relationship with regional unemployment and inflation.

Thanks!..


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