ON THE DEATH OF THE PHILLIPS CURVE: FURTHER EVIDENCE

In a recent contribution to this journal, William Niskanen (2002) convincingly showed that the Phillips curve does not exist in the United States, at least not in the form usually proposed. Though there is a negative short-run relationship between unemployment and the inflation rate, the long-run correlation is positive. During the sample period 1960 through 2001, the nonaccelerating inflation rate of unemployment (NAIRU) is estimated at a low 3.7 percent, corresponding to zero inflation. These striking results provide a starting point for further research. In this article, I apply cointegration techniques to reproduce Niskanen’s results and expand the analysis to other industrialized countries. The estimation results show that the concept of the Phillips curve should indeed be buried. As a policy guideline it is totally useless.