US Philips Curve in Long Run

This paper reviews the trend of Philips curve in the US economy using the data obtained from US inflation rate and unemployment rate. The data used covers two decades – from 1992 to 2011. From the data, there is weak co-integration between inflation rate and unemployment rate. Further, in the long-run casualty, the data show unidirectional relationship between the rate of inflation and the rate of unemployment. For in some economic years like 1992-1993 both unemployment rate and inflation rate show positive correlation; that is, both decline. However, in 2000-2003, the decline/increase of unemployment corresponds to an inverse change of inflation rate. The unidirectional trend of the two rates is attributed to the existence of other temporary factors such as oil price gyrations, change in productivity and change in imports.

Key words: Philips Curve, Unemployment Rate and Inflation Rate