Title: Using a CGE Model to Identify the Policy Trade-off between Unemployment and Inflation. The Efficient Phillips Curve
Citation: ECONOMIC SYSTEMS RESEARCH vol. 24 no. 4 p. 349-369
Publication Year: 2012
JRC N°: JRC72104
ISSN: 0953-5314
URI: http://dx.doi.org/10.1080/09535314.2012.691088
DOI: 10.1080/09535314.2012.691088
Type: Articles in periodicals and books
Abstract: This paper provides a new reading of a classical economic relation: the short-run Phillips curve. Our point is that, when dealing with inflation and unemployment, policy making can be understood as a multicriteria decision making (MCDM) problem. Hence, we use so-called multiobjective programming in connection with a computable general equilibrium (CGE) model to determine the combinations of policy instruments that provide efficient combinations of inflation and unemployment. This approach results in an alternative version of the Phillips curve labelled as efficient Phillips curve. Our aim is to present an application of CGE models to a new area of research that can be especially useful when addressing policy exercises with real data. We apply our methodological proposal within a particular regional economy, Andalusia, in the South of Spain. This tool can give some keys for policy advice and policy implementation in the fight against unemployment and inflation.
JRC Directorate:Growth and Innovation

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