Employment Growth, Inflation and Output Growth: Was Phillips Right? Evidence from a Dynamic Panel

Caporale, Guglielmo Maria and Škare, Marinko (2011) Employment Growth, Inflation and Output Growth: Was Phillips Right? Evidence from a Dynamic Panel. Centre for EMEA Banking, Finance and Economics Working Paper Series, 2011 (24). pp. 1-25.

Abstract

In this paper we analyse the short- and long-run relationship between employment growth, inflation and output growth in Phillips’ tradition. For this purpose we apply FMOLS, DOLS, PMGE, MGE, DFE, and VECM methods to a nonstationary heterogeneous dynamic panel including annual data for 119 countries over the period 1970-2010, and also carry out multivariate Granger causality tests. The empirical results strongly support the existence of a single cointegrating relationship between employment growth, inflation and output growth with bidirectional causality between employment growth and inflation as well as output growth, giving support to Phillips’ Golden Triangle theory.

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