THE PHILLIPS-CURVE - EVIDENCE OF A LADY OR TIGER DILEMMA

This study examines the relation between inflation and unemployment. Granger Causality was applied to U.S. data since the end of the Vietnam War. The results support the conclusion that there is a unidirectional causation running from inflation to unemployment. This result has important policy and research implications. The natural rate hypothesis is not supported for the time period examined. It cannot be determined, however, whether the slope coefficient for the Phillips Curve characteristic of this period is positive or negative. This result, together with the existence of policy lags, implies that there is inherent risk in any policy perscription. Further, the results support Irving Fisher's specification of regression models used to estimate posited relations between inflation and unemployment.