The Phillips curve in economics is a theory due to Bill Phillips, a New Zealand economist, about the trade-off between inflation and unemployment rate. According to this, lower than normal unemployment rate goes hand in hand with higher than normal inflation, and vice versa. The Wooldridge dataset "Phillips" includes data on the US annual inflation (inf) and unemployment (unem) rates from 1948 to 2003. We want to see if this theory is supported by the data or not.
Regress inflation on a constant and unemployment rate. Do the estimates support the theory?

Question

The Phillips curve in economics is a theory due to Bill Phillips, a New Zealand economist, about the trade-off between inflation and unemployment rate. According to this, lower than normal unemployment rate goes hand in hand with higher than normal inflation, and vice versa. The Wooldridge dataset "Phillips" includes data on the US annual inflation (inf) and unemployment (unem) rates from 1948 to 2003. We want to see if this theory is supported by the data or not.

Regress inflation on a constant and unemployment rate. Do the estimates support the theory?

Accepted Answer

We find a positive estimate for the coefficient of  unem , and conclude that the data does not support the Phillips curve hypothesis.

Answer

We find a negative estimate for the coefficient of  unem , and conclude that the data supports the Phillips curve hypothesis.

Answer

We find a negative estimate for the coefficient of  unem , and conclude that the data does not support the Phillips curve hypothesis.

Answer

We find a positive estimate for the coefficient of  unem , and conclude that the data supports the Phillips curve hypothesis.

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The Phillips curve in economics is a theory due to Bill Phillips, a New Zealand ...

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