PHILLIPS CURVES AND UNEMPLOYMENT DYNAMICS: A CRITIQUE AND A HOLISTIC PERSPECTIVE

Abstract.  The conventional wisdom that inflation and unemployment are unrelated in the long run implies the compartmentalization of macroeconomics. While one branch of the literature models inflation dynamics and estimates the unemployment rate compatible with inflation stability, another one determines the real economic factors that drive the natural rate of unemployment. In the context of the new Phillips curve, we show that frictional growth, i.e. the interplay between lags and growth, generates an inflation–unemployment trade-off in the long run. We thus argue that a holistic framework, such as the chain reaction theory (CRT), should be used to jointly explain the evolution of inflation and unemployment. A further attraction of the CRT approach is that it provides a synthesis of the traditional structural macroeconometric models and the (structural) vector autoregressions.     

The potential of a multi-mode data collection design to reduce non response bias. The case of a survey of employers

The aim of the paper is to compare two alternative survey designs in terms of resultant response rates, non response bias and cost. The first design is a simple postal survey with follow-up mailings; the second design is a two-phase multi-mode design, where the postal survey is followed at the second phase by a telephone survey of non-respondents. We present a case study based on a survey of employers. In this study we find evidence that the sample obtained using only postal methods is biased in important respects. Bias is not apparent in the demographic characteristics of the employees. But bias is observed in some of the employees’ employment characteristics and some of the characteristics of the firms in which they work. The multi mode design seems, overall, to have reduced or removed the bias of the postal sample. Only in marginal respects was some further bias introduced. We also compare costs of the two designs, to enable a comparison of cost-effectiveness at bias reduction.     

DSGE Models in the Frequency Domains

We use frequency domain techniques to estimate a medium‐scale dynamic stochastic general equilibrium (DSGE) model on different frequency bands. We show that goodness of fit, forecasting performance and parameter estimates vary substantially with the frequency bands over which the model is estimated. Estimates obtained using subsets of frequencies are characterized by significantly different parameters, an indication that the model cannot match all frequencies with one set of parameters. In particular, we find that: (i) the low‐frequency properties of the data strongly affect parameter estimates obtained in the time domain; (ii) the importance of economic frictions in the model changes when different subsets of frequencies are used in estimation. This is particularly true for the investment adjustment cost and habit persistence: when low frequencies are present in the estimation, the investment adjustment cost and habit persistence are estimated to be higher than when low frequencies are absent. Copyright © 2014 John Wiley & Sons, Ltd.     

Investment Crowding‐Out and Labor Market Effects of Financialization in the US

This paper studies the impact of financialization on unemployment in the United States. We estimate a dynamic multi‐equation macro labor model including labor demand, labor suppy, wage‐setting, and capital accumulation equations. Financialization appears as a key determinant of capital accumulation which, in turn, is the transmission channel toward its unemployment effects. We conduct a series of counterfactual simulations where we quantify the macroeconomic consequences of the recent swings experienced by the financialization process. We find that it has had relevant unemployment effects in all periods considered, even in those where financial payments were not the main driver of capital accumulation. We also identify a structural change in the financialization process in the early 1980s, and find that it has caused USA unemployment to systematically fluctuate around 2 percentage points above what it would otherwise have done. We call for a reappraisal of the way financial markets work, and stress the vital need of preventing financial devices that result in productive investment crowding‐out.     

VARs,common factors and the empirical validation of equilibrium business cycle models

Equilibrium business cycle models have typically less shocks than variables. As pointed out by Altug (1989) International Economic Review 30 (4) 889–920 and Sargent (1989) The Journal of Political Economy 97 (2) 251–287, if variables are measured with error, this characteristic implies that the model solution for measured variables has a factor structure. This paper compares estimation performance for the impulse response coefficients based on a VAR approximation to this class of models and an estimation method that explicitly takes into account the restrictions implied by the factor structure. Bias and mean-squared error for both factor- and VAR-based estimates of impulse response functions are quantified using, as data-generating process, a calibrated standard equilibrium business cycle model. We show that, at short horizons, VAR estimates of impulse response functions are less accurate than factor estimates while the two methods perform similarly at medium and long run horizons.     

PRODUCTIVITY GROWTH AND THE PHILLIPS CURVE: A REASSESSMENT OF THE US EXPERIENCE

In this paper, we analyse a new Phillips curve (NPC) model and demonstrate that (i) frictional growth, i.e., the interplay of wage staggering and money growth, generates a non‐vertical NPC in the long run and (ii) the Phillips curve (PC) shifts with productivity growth. On this basis we estimate a dynamic system of macro‐labour equations to evaluate the slope of the PC and explain the evolution of inflation and unemployment in the USA from 1970 to 2006. Because our empirical methodology relies heavily on impulse response functions, it represents a synthesis of the traditional structural modelling and (structural) vector autoregressions. We find that the PC is downward‐sloping with a slope of ?3.58 in the long run. Furthermore, during the stagflating 1970s, the productivity slowdown contributed substantially to the increases in both unemployment and inflation, whereas the monetary expansion was quite ineffective and led mainly to higher inflation. Finally, the monetary expansion and productivity speedup of the roaring 1990s were both responsible for the significant lowering of the unemployment rate.     

Sustainable performance index for tourism policy development

Development of sustainable tourism policies could be a useful way of encouraging new forms of business, increasing employment and promoting the conservation of landscapes; in this regard, the application of the European Charter for Sustainable Tourism in Protected Areas represents a referential methodology for local development and a possibility to involve local stakeholders in the definition of sustainability policy. In many cases, integrated sustainability indicators are developed within a participatory process; the present study represents an innovative attempt to evaluate sustainability holistically, by defining specific targets through the definition of indicators suitable to measure and evaluate the temporal evolution of development policies, mainstreaming sustainability to reduce adverse effects on the environment and promoting conservation of local and traditional values. Application of sustainability indicators to measure welfare and development at local scales is strategic to evaluate the short and long term effects of strategies developed through the European Charter participatory process.     

Assessing the ecological and economic benefits of a no-take marine reserve

The management of marine resources is often impeded by a lack of models to integrate ecological and economic information on exploited populations. We used available biological and economic data for an overexploited population of the leopard grouper (Mycteroperca rosacea) to study if closing parts of the population to fishing would allow sustainable use and maximum economic benefits. Our results suggest that fishing should be closed in all spawning areas and in at least 50% of the adjacent areas. High non-consumptive benefits would be achieved with large closures because the abundance of the leopard groupers, which is an important attribute for SCUBA divers, would increase. In a no-take reserve, the welfare gains of divers seemingly could compensate for losses incurred by fishers if parts of their fishing grounds are closed. An adaptive management scheme could provide a way to incorporate newly available information into management decisions for the no-take reserve.     

A characterization of peanut consumption in four countries: results from focus groups and their implications for peanut allergy prevalence

Rates of peanut allergy in the Western world have increased over the last 30 years, although it is unclear why. While eating behaviours are likely to be connected to allergy prevalence, the precise relevant factors are uncertain. This study aimed to investigate dietary differences and changes in dietary habits in peanut consumption (in apparent and hidden forms) in four different countries (Bulgaria, Poland, Spain, UK), specifically chosen because of their different ‘peanut experiences’. Focus groups revealed a common perception that dietary habits have become less healthy, with more consumption of processed foods and an increase in snacking. In addition, ethnic cuisine was perceived to have had an important impact on European eating habits, while participants identified an increase in consumption of more ‘exotic’ forms of peanuts and their products. These findings point to an increase in exposure to peanuts, particularly in hidden forms, that superficially parallels increased prevalence rates. However, it was also clear that participants lacked knowledge about the composition of food and non‐food products. The dietary trends identified here thus warrant further quantitative investigation, particularly in the context of differential national patterns of allergy prevalence – data on which is currently being gathered within the EC‐funded EuroPrevall project.     

Fiscal deficits and the socioeconomic consequences of rebalancing: Insights from a TVP-VAR with stochastic volatility

This article connects two salient economic features: (i) Fiscal shocks have asymmetric effects across business cycle phases (Gechert, Horn, & Paetz, 2019); (ii) the unemployment-output trade-off is time varying and may be unstable. The intertwined dynamic behaviour of fiscal deficit shocks and the unemployment-output trade-off is studied in this article using a time-varying parameter (TVP) vector autoregression (VAR) with stochastic volatility techniques applied to the analysis of data from Canada, France, Germany, Japan, Spain, Sweden, United Kingdom and the United States of America. We confirm the trade-off heterogeneity across country, and its time-varying nature across time, showing in addition its fluctuation around a long-run reference value. We document significant short-run impacts of fiscal shocks on the unemployment-output trade-off which, based on the experience of the Global Financial Crisis, becomes larger in periods of economic turmoil. Policy-wise, the rebalancing of public finances may have unexpected adverse effects on job creation if implemented during slumps, precisely when the labour market sensitivity with respect to the performance of the product market is likely to be more acute. This message is particularly relevant in the aftermath of the Covid-19 pandemic.