The Inflation-Unemployment Trade-Off: Empirical Considerations and a Simple US-Euro Area Comparison

This paper uses recently developed robust estimation methods to empirically reassess the long-standing inflation-unemployment trade-off debate. Indeed, we study to what extent unemployment-based New Keynesian Phillips Curves are informative about the relation- ship between inflation dynamics and labor market conditions. In particular, we attempt to quantify the ‘elasticities’ of inflation with respect to unemployment in two economies, the US and the Euro Area, whose labor market characteristics are admittedly very different. We find that the relevance of the inflation-unemployment trade-off and its empirical ad- equacy is greatly enhanced once the informational content of key labor market variables is explored in our estimations.