THE SOUTH AFRICAN PHILLIPS CURVE: HOW APPLICABLE IS THE GORDON MODEL?

Philippe Burger · Marina Marinkov

40 citations0/0 files storedSouth African Journal of Economics

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Monetary Policy and Economic Impact Economic Theory and Policy Unemployment and Economic Growth

Abstract

Abstract Is there a Phillips curve relationship present in South Africa and if so, what form does it take? Traditionally the method to establish whether or not there is a relationship between the output gap and the change in inflation is merely to regress the latter on the former. This yields the well‐known augmented Phillips curve. However, Gordon has argued that this specification of the Phillips curve produces biased results. Instead, he puts forward and estimates successfully for several industrialised countries his so‐called triangular model that tests for hysteresis and inertia in the behaviour of inflation, as well as the impact on inflation of changes in the output level. This paper considers whether or not Gordon's triangle model is applicable to South Africa, i.e. are hysteresis and inertia present in South Africa? In addition, in an attempt to find a better estimation of the output gap, the paper also experiments with alternative ways to estimate the long‐run output level, including the standard HP‐filter, as well as a production function approach.

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References

1958The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957 1 1995New Keynesian Economics and the Phillips Curve 1997The Time-Varying NAIRU and its Implications for Economic Policy 1997Reflections on the Natural Rate Hypothesis 1997The NAIRU, Unemployment and Monetary Policy 1997What We Know and Do Not Know About the Natural Rate of Unemployment 1997What is new-Keynesian economics?2002The NAIRU in Theory and Practice

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