Publication

This paper challenges the conventional wisdom that inflation and unemployment are unrelated in the long run. In the context of the new Phillips curve (NPC), the authors show that frictional growth, or the interplay between lags and growth, generates an inflation-unemployment tradeoff in the long run. Thus, they argue that a holistic framework, like the chain reaction theory (CRT), should be used to jointly explain the evolution of inflation and unemployment. A further attraction of the CRT approach is that it provides a synthesis of the traditional structural macroeconometric models and the (structural) vector autoregressions (VARs).