Unemployment, Disequilibrium, and the Short Run Phillips Curve: an Econometric Approach

40 Pages Posted: 5 Jul 2004 Last revised: 9 Jul 2010

See all articles by Richard Quandt

Richard Quandt

Princeton University; Andrew W. Mellon Foundation

Harvey S. Rosen

Princeton University - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 1985

Abstract

The paper specifies a disequilibrium model for the aggregate labor market consisting of demand and supply functions for labor, an adjustment equation for wages as well as for prices, a transactions equation and, finally, an equation that relates measured unemployment to vacancies and to excess demand. The model has a more sophisticated treatment of dynamics than earlier disequilibrium models, and uses measured unemployment as an endogenous variable. Two of the error terms are assumed to be serially correlated and the coefficients are estimated by maximum likelihood. The parameter estimates and the goodness-of-fit are satisfactory and the model's implications for the behavior of several important variables are sensible. Excess demand estimates computed in various ways are reasonable. The model is used to estimate the natural rate of unemployment as well as a short run Phillips curve. Finally, the stability properties ofthe model are analyzed by considering the eigenvalues of the system; they are found to have moduli less than one.

Suggested Citation

Quandt, Richard E. and Rosen, Harvey S., Unemployment, Disequilibrium, and the Short Run Phillips Curve: an Econometric Approach (June 1985). NBER Working Paper No. w1648, Available at SSRN: https://ssrn.com/abstract=338743

Richard E. Quandt

Princeton University ( email )

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Princeton, NJ 08544-0708
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Andrew W. Mellon Foundation

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Harvey S. Rosen (Contact Author)

Princeton University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

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