Does the Phillips Curve Really Exist؟ A Multi-Countries Analysis of Financial Policies and Shocks

Document Type : Research Paper

Author

Assistant Professor in Economics, Institute for Humanities and Cultural Studies

10.30465/jnet.2024.46802.2080

Abstract

The critical question is, if the Phillips Curve really exists, how have economies with simultaneously low and stable unemployment and inflation rates become ever-increasingly a global experience? This research claims that financial development can prevent the formation of any inflation-unemployment trade-off. The financial development multilateral index is calculated by combining banking sector and stock market indicators using Principal Components Analysis and Credit Weights. Findings from the estimation of “Rolling Auto-Regressive Distributed Lags” (RARDL) for countries with different levels of financial development and financial structures from 1979Q1 to 2016Q4 are in support of policymaking for “balanced development of financial infrastructures in the framework of a well-balanced financial structure” for economies that want to target low inflation and unemployment simultaneously. Finally, the findings of this research show that the trade-off between inflation and unemployment is, in its nature, a policy relationship, not a behavioral one. While there is an “apparently” stable trade-off between inflation and unemployment by using the demand-side policies (and the resulting demand-pulled inflation), by using supply-side policies (and the resulting cost-pushed inflation) there will be no trade-off, so from a political point of view, exit from stagflation become possible
JEL Classification: E24, E31, G00, C22.

Keywords

References

ابوترابی، م. ع. (1393). مطالعه زیرساختارهای تعیین‌کننده اثربخشی توسعه مالی بر رشد اقتصادی در ایران. رساله دکتری، دانشگاه فردوسی مشهد، دانشکده علوم اداری و اقتصادی.
ابوترابی، م. ع. و احمدیان یزدی، ف. (1398). توسعه مالی، رانت منابع طبیعی و سرمایه فیزیکی در ایران: نفرین یا موهبت منابع؟. بررسی مسائل اقتصاد ایران، 6(1): 1-27.
ابوترابی، م. ع.، حاج‌امینی، مهدی و توحیدی، س. (1399). توسعه مالی و مبادله سیاستی تورم-بیکاری: شواهد تجربی از کشورهای در حال‌ توسعه و توسعه‌یافته. پژوهش‌های برنامه و توسعه، 1(2)، 9-34.
توحیدی، س. (1399). استرس‌ مالی و رشد بخش‌های اقتصادی در ایران. پایان‌نامه کارشناسی ارشد. تهران: دانشگاه تربیت مدرس تهران.
شمس‌الاحرار فرد، ف. (1398). نقش عامل‌های توسعه مالی در چگونگی اثرگذاری قیمت نفت بر روی رانت نفت و رانت گاز در ایران. رساله دکتری، دانشگاه تهران: تهران.
شمس‌الاحرار فرد، ف.، احمدیان، م.، بهرادمهر، ن.، مهرآرا، م.، و عبدلی، ق. (۱۳۹۹). نقش عامل‌های توسعه مالی در چگونگی اثرگذاری قیمت نفت بر روی رانت نفت و رانت گاز در ایران. پژوهش‌های اقتصادی (رشد و توسعه پایدار)،۲۰(۴): ۱۷۷-۲۰۴.
متین، ش. و حسینی، س. ش. (1402). سرکوب مالی و علّیت میان تورم-بیکاری در ایران. اقتصاد و تجارت نوین، 18(2)، 83-108.
Aboutorabi, M. A. & Aboutorabi, N. (2012). Financial Development and Economic Growth in Iran: The Servey of Trend of Financial Development Indicators and Its Causality Relationship with Economic Growth in Iran. Lambert Academic Publishing (LAP): Saarbrucken, Germany.
Ang, J. B. (2007). Are Saving and Investment Cointegrated? The Case of Malaysia 1965-2003. Applied Economics, 39(17), 2167-2174.
Ang, J. B. (2008). Financial Development and the FDI-Growth Nexus: The Malaysian Experience. Applied Economics, 41(13), 1595-1601.
Badinger, H. (2009). Globalization, the Output–Inflation Tradeoff and Inflation. European Economic Review, 53(8), 888-907.
Demetriades, P. O. and Hussein, K. (1996). Does Financial Development Cause Economic Growth? Time-Series Evidence from 16 Countries. Journal of Development Economics, 51(2), 387-411.
Edwards, S. (1996). Why Are Latin America’s Savings Rates So Low? An International Comparative Analysis. Journal of Development Economics, 51(1), 5-44.
Ericsson, N. R., Irons, J. S. & Tryon, R. W. (2001). Output and Inflation in the Long Run. Journal of Applied Econometrics, 16(3), 241-253.
Fisher, I., (1926). A Statistical Relation between Unemployment and Price Changes. International Labour Review, 13: 785-92. Reprinted as “I Discovered the Phillips Curve”. Journal of Political Economy, 81(1973), 496-502.
Friedman, M. (1966). ‘Comments’. In Guidelines, Informal Controls, and the Market Place, ed. G. P. Schultz and R. Z. Aliber. Chicago: Chicago University Press, 55–61.
Friedman, M. (1975). Unemployment versus Inflation?: An Evaluation of the Phillips Curve. Institute of Economic Affairs.
Friedman, M. (1977). Nobel Lecture: Inflation and Unemployment. Journal of Political Economy, 85(3), 451-472.
Friedman, M., & Friedman, R. D. (1984). Tyranny of the Status Quo. Harcourt Brace Jovanovich: San Diego, CA.
Friedman, M., & Schwartz, A. J. (1982). The Role of Money. In: Monetary Trends in the United States and United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867–1975 (pp. 621-632). University of Chicago Press.
Gordon, R. J. (2011). The History of the Phillips Curve: Consensus and Bifurcation. Economica, 78(309), 10-50.
Griffin, K. B. (1962). A Note on Wages, Price and Unemployment. Bulletin of the Oxford University Institute of Economics and Statistics, 24(3), 379-385.
Gupta, K. L. (1970). Foreign Capital and Domestic Savings: A Test of Haavelmo’s Hypothesis with Cross-country Data: A Comment. Review of Economics and Statistics, 52(2), 214-216.
Harris, D. R. (1997). Stock Markets and Development: A Re-assessment. European Economic Review, 41(1), 139-146.
Hume, D. (1752). Of Money. Reprinted in his Writings on Economics. Edited by Eugene Rotwein. Madison: University of Wisconsin Press, 1955.
Humphrey, T. M. (1985). The Early History of the Phillips Curve. Federal Reserve Bank of Richmond Economic Review, 71(5), 17-24.
Humphrey, T.M., (1991). Nonneutrality of Money in Classical Monetary Thought. Federal Reserve Bank of Richmond Economic Review, 77(2), 3-15.
Hylleberg, S., Engle, R. F., Granger, C. W. J., &Yoo, B. S. (1990). Seasonal Integration and Cointegration. Journal of Econometrics, 44(1-2), 215-238.
Juillard, M., Kamenik, O., Kumhof, M., & Laxton, D. (2008). Optimal Price Setting and Inflation Inertia in a Rational Expectations Model. Journal of Economic Dynamics and Control, 32(8), 2584-2621.
Kaldor, N. (1959). Economic Growth and the Problem of Inflation. Economica, 26(104), 287-298.
Kenny, C. and Williams, D. (2001). What Do We Know about Economic Growth? Or, Why Don’t We Know Very Much?. World Development, 29(1), 1-22.
Kirkpatrick, C. (2005). Finance and Development: Overview and Introduction. Journal of Development Studies, 41(4), 631-635.
Klein, L. R. (1950). Economic Fluctuations in the United States, 1921-1941. New York: Wiley.
Klein, L. R. & Goldberger, A. S. (1955). An Econometric Model of the United States, 1929-1952. Amsterdam: North-Holland.
Mills, T. C. (2003). Modeling Trend and Cycles in Economic Time Series. Palgrave Macmillan Publication.
Modigliani, F. (1977). The Monetarist Controversy or, Should We Forsake Stabilization Policies. American Economic Review, 67(2), 1-19.
Neusser, K. and Kugler, M. (1998). Manufacturing Growth and Financial Development: Evidence from OECD Countries. Review of Economics and Statistics, 80(4), 638-646.
Phillips, A. W. (1958). The Relationship Between Unemployment and the Role of Change of Money Wage Rates in the UK, 1861-1957. Economica, 25(100), 283-299.
Samuelson, P. A. (1961). Economics (5th ed). New York: McGraw-Hill.
Samuelson, P. A. & Solow, R. M. (1960). Analytical Aspects of Anti-Inflation Policy. The American Economic Review, 50(2), 177-194.
Sargent, T. (1981). Stopping Moderate Inflations: The Methods of Poincaré and Thatcher (No. 1). Federal Reserve Bank of Minneapolis.
Sargent, T. J. (1982). The Ends of Four Big Inflations. In Inflation: Causes and Effects (pp. 41-98). University of Chicago Press.
Thiel, M. (2001). Finance and Economic Growth: A Review of Theory and the Available Evidence. European Commission Economic Paper No. 158.
Thornton, H. (1802). An Enquiry into the Nature and Effects of the Paper Credit of Great Britain. Edited with an introduction by F. A. von Hayek. New York: Rinehart and Company, Inc., 1939.
World Bank (2022). Global Financial Development Dataset. World Bank. https://databankfiles.worldbank.org/public/ddpext_download/GFDD_EXCEL.zip

Files

History

  • Receive Date: 18 September 2023
  • Revise Date: 01 June 2024
  • Accept Date: 29 May 2024

Share

How to cite

Statistics