Long-run Phillips-type trade-offs in European Union countries

The empirical methodology recently developed [Econ. Q. 83 (1997) p. 69] is employed to test for a zero long-run elasticity of the rate of unemployment with respect to permanent shocks in the rate of inflation. We. use quarterly data spanning the last 30-40 years for Austria, Denmark, Finland, France, Germany, Italy, Spain, Sweden and the UK. There is considerable evidence against a vertical long-run Phillips curve, when the model is identified by specifying a short-run Phillips curve of the type favoured by Keynesian economists. Possible exceptions are Denmark, France and Germany, for which evidence against a vertical long-run Phillips curve is limited. When identification is achieved by postulating a short-run trade-off consistent with the monetarist rational expectations models, the vertical long-run Phillips curve cannot be rejected, except in the case of Italy. (C) 2002 Elsevier Science B.V. All rights reserved.