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24 Cato J. 341 (2004)
On the Death of the Phillips Curve: Further Evidence

handle is hein.journals/catoj24 and id is 347 raw text is: ON THE DEATH OF THE PHILLIPS CURVE: FURTHER EVIDENCE Richard Reichel 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 un- employment (NAIRU) is estimated at a low 3.7 percent, correspond- ing 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 indus- trialized countries. The estimation results show that the concept of the Phillips curve should indeed be buried. As a policy guideline it is totally useless. Niskanen's Model Niskanen proposed the following functional form of the relation- ship between the unemployment rate U and the inflation rate I (t is the time index): (1) U,= . + y1U,_1 + P3I + P1I-1 + e. This autoregressive distributed lag model (ARDL) relates current unemployment to the current inflation rate, the inflation rate lagged once, and the lagged unemployment rate. An ordinary least squares (OLS) estimation based on the period from 1960 through 2001 (an- nual U.S. data) yielded the following equation: (2) Ut = 1.487 + 0.594U,-, - 0.2291 + 0.464I,-. Cato Journal, Vol. 24, No. 3 (Fall 2004). Copyright @ Cato Institute. All rights reserved. Richard Reichel is Associate Professor of Economics at the University of Erlangen- Nuernberg. 341

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