USING A CGE MODEL TO IDENTIFY THE POLICY TRADE-OFF BETWEEN UNEMPLOYMENT AND INFLATION. THE EFFICIENT PHILLIPS CURVE |
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Authors: | Francisco J. André M. Alejandro Cardenete |
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Affiliation: | 1. Department of Economic Analysis , Universidad Complutense de Madrid , Madrid , Spain;2. European Commission (European Commission, Joint Research Centre-Institute for Prospective Technological Studies) , Seville , Spain;3. Department of Economics, Quantitative Methods and Economic History , Universidad Pablo de Olavide , Seville , Spain |
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Abstract: | This paper provides a new reading of a classical economic relation: the short-run Phillips curve. Our point is that, when dealing with inflation and unemployment, policy-making can be understood as a multicriteria decision-making problem. Hence, we use so-called multiobjective programming in connection with a computable general equilibrium (CGE) model to determine the combinations of policy instruments that provide efficient combinations of inflation and unemployment. This approach results in an alternative version of the Phillips curve labelled as efficient Phillips curve. Our aim is to present an application of CGE models to a new area of research that can be especially useful when addressing policy exercises with real data. We apply our methodological proposal within a particular regional economy, Andalusia, in the south of Spain. This tool can give some keys for policy advice and policy implementation in the fight against unemployment and inflation. |
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Keywords: | Short-run Phillips curve Multicriteria decision-making Computable general equilibrium model Efficient policies Multiobjective programming |
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