Clusters and Loops of the German Phillips Curve

Quaas, Georg and Klein, Mathias (2010): Clusters and Loops of the German Phillips Curve.

Abstract

A preliminary regression analysis of different versions of the Phillips Curve on the basis of yearly data of the German economy from 1952 to 2004 leads to the conclusion that the original finding might still be of empirical relevance. A simple plot of seasonal adjusted quarterly data between the change of nominal wage rates and the unemployment rate shows a picture similar to that by which Phillips was inspired to his famous discovery: A long-term tendency of a negative, non-linear relationship coupled with minor deviations from this tendency forming sometimes so called loops. At fist sight, the Phillips Curve of Germany comprises clusters of data points and movements between these clusters. The clusters can be analysed and – together with the rest of data – dissolved into 12 (left or right turning) loops and 9 movements between these loops during the period from 1971Q1 to 2009Q4. In spite of the striking differences of these phenomena, a model with one regression equation is sufficient to explain the loops, the movements between the loops and the long-term tendency of the German Phillips Curve. This empirical finding contradicts several aspects with the ruling dogma of a Phillips Curve that broke down in the ‘70s and with the allegedly better fit of its replacements by augmented and modified Phillips Curves.

• Item Type: MPRA Paper
• Language: English
• Keywords: Wages, inflation, unemployment, Phillips curve
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E13 - Neoclassical

References

Abel, A. B. and B. S. Bernanke (2001), Macroeconomics, 4th edn, Addison Wesley Longman.

Blanchard, O. and G. Illing (2009), Makroökonomie, 5th edn, Pearson, München.

Borchert, M. and A. Fröhling (2001), ‘NAIRU, fiskalische Abgabenlast und Arbeitsproduktivität in Deutschland’, WiSt – Wirtschaftswissenschaftliches Studium 30, 454-462.

Burda, M. C. and C. Wyplosz (2009), Makroökonomie: Eine europäische Perspektive, 3th edn, Franz Vahlen, München.

Dicks-Mireaux, L. A. and J. C. Dow (1959), ‘The Determinants of Wage Inflation: United Kingdom, 1946-1956’, Journal of the Royal Statistical Society 122, 145-184.

Dieckheuer, G. (2003), Makroökonomik, 5th edn, Springer, Berlin.

Friedman, M. (1968), ‘The Role of Monetary Policy’, The American Economic Review 58, 1-17.

Eckstein, O. and T. A. Wilson (1962), ‘The Determination of Money Wages in American Industry’, The Quarterly Journal of Economics 76, 379-414.

Eckstein, O. and J. A. Girola (1978), ‘Long-Term Properties of the Price-Wage Mechanism in the United States, 1891 to 1977’, The Review of Economics and Statistics 60, 323-333.

Heilemann, U. and A. Samarov (1990), ‘Changes in the Determinants of the Rate of Change of Wage Rates in the FRG: A Recursive Analysis 1952 to 1985’, Jahrbücher für Nationalökonomie und Statistik 207, 448-463.

Hines, A. G. (1964), ‘Trade Unions and Wage Inflation in the United Kingdom 1893-1961’, The Review of Economic Studies 31, 221-252.

Hoover, K. D. (2010), ‘Phillips Curve, The Concise Encyclopedia of Economics’, URL: www.econlib.org/library/Enc/PhillipsCurve.html, download Jan. 2010.

Kaldor, N. (1959), ‘Economic Growth and the Problem of Inflation‘, Economica 26, 287-298.

Kösters, W. and B. Hofmann (1998), ‘40 Jahre Phillipskurve: Ein kurzer aktueller Überblick über eine lange Diskussion‘, in: R. Hüpen and T. Werbeck (eds.), Wirtschaftslehre zwischen Modell und Realität – Theoretische Analyse als Fundament anwendungsbezogener Aussagen, Lucius & Lucius, Stuttgart.

Kuh, E. (1967), ‘A Productivity Theory of Wage Levels – An Alternative to the Phillips Curve’, The Review of Economic Studies 34, 333-360.

Liebling, H. I. and A. T. Cluff (1969), ‘U.S. Postwar Inflation and Phillips Curves’, Kyklos 22, 232-250.

Lipsey, R. G. (1960), ‘The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1862-1957: A Further Analysis’, Economica 27, 1-31.

Lipsey, R. G. and J. M. Parkin (1970), ‘Income Policy: A Re-Appraisal’, Economica 37, 115-138.

Maneval, H. (1973), Die Phillips-Kurve. Empirische, theoretische und wirtschaftspolitische Aspekte, Paul Siebeck, Tübingen.

Mankiw, G. N. (2004), Principles of Economics, 3th edn, Thomson South-Western, Ohio.

Parkin, J. M. (1970), ‘Income Policy: Some Further Results on the Determination of the Rate of Change of Money Wages’, Economica 37, 386-401.

Perry, G. L. (1964), ‘The Determinants of Wage Rate Changes and the Inflation-Unemployment Trade-off for the United States’, The Review of Economic Studies 31, 287-308.

Phelps, E. S. (1967), ‘Expectations of Inflation and Optimal Unemployment over Time’, Economica 34, 254-281.

Phelps, E. S. (1968), ‘Money-Wage Dynamics and Labor-Market Equilibrium’, The Journal of Political Economy 76, 678-711.

Phillips, A. W. (1958), ‘The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957’, Economica 25, 283-299.

Samuelson, P. A. and R. M. Solow (1960), ‘Analytical Aspects of Anti-Inflation Policy’, The American Economic Review 50, 177-194.

Steinmann, G. (1973), ‘Lohnentwicklung und Beschäftigungsgrad: Die Neuauflage der Kontroverse zwischen der Keynesschen und der neoklassischen Theorie bei der Diskussion um die Phillips-Kurve’, Kyklos 109, 105-120.

Streit, M. E. (1972), ‘The Phillips curve: Fact or fancy? — The example of West Germany’, Review of World Economics 108, 607-633.

Data Sources

Statistisches Bundesamt (StBA), Lange Reihen für das frühere Bundesgebiet nach ESVG, 2. Auflage, Jahresdaten 1950-1969, March 1994.

StBA, Volkswirtschaftliche Gesamtrechnung, Fachserie 18, Reihe S.21, Revidierte Ergebnisse 1970-2004, March 2005.

StBA, Volkswirtschaftliche Gesamtrechnungen, Fachserie 18, Reihe 1.5, Inlandsproduktsberechnung, Lange Reihen ab 1970, September 2007 / Februar 2010.

StBA, Volkswirtschaftliche Gesamtrechnungen, Fachserie 18, Reihe S.27, Inlandsproduktsberechnung, Revidierte Vierteljahresergebnisse, September 2006 / November 2006.

StBA, Volkswirtschaftliche Gesamtrechnungen, Fachserie 18, Reihe 1.2, Inlandsproduktsberechnung, Vierteljahresergebnisse, Zusatztabellen, Tabelle Unverketteten Volumenangaben, Februar 2010.

Agentur für Arbeit, Aktuelle Daten - Arbeitslose nach Rechtskreisen. http://www.pub.arbeitsamt.de/hst/services/statistik/detail/a.html

Agentur für Arbeit, Zeitreihen – Arbeitslosigkeit in Deutschland seit 1950. http://www.pub.arbeitsamt.de/hst/services/statistik/detail/z.html

Definitions, Indicators, and Data www.forschungsseminar.de/phillips.htm