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AGGREGATE PHILLIPS CURVES ARE NOT ALWAYS VERTICAL: HETEROGENEITY AND MISMATCH IN MULTIREGION OR MULTISECTOR ECONOMIES

Published online by Cambridge University Press:  16 January 2001

A.J. Hughes Hallett
A.J. Hughes Hallett
Affiliation:
University of Strathclyde and CEPR
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Abstract

The aggregation of sectoral or regional Phillips curves yields an inflation–unemployment trade-off that is not vertical in the long run if there are mismatches between supply and demand in the regional or sectoral labor markets. This remains true even when the individual Phillips curves are all vertical. This result stems from variations in the slope of the individual short-run Phillips curves, rather than from changes to the equilibrium level of unemployment. It implies a role for the management of the distribution of demand over different sectors or regions, in order to minimize the natural rate of unemployment.

Keywords

Natural Rates of UnemploymentMismatchDistribution of Demand
Type
Research Article
Information
Macroeconomic Dynamics , Volume 4 , Issue 4 , December 2000 , pp. 534 - 546
Copyright
© 2000 Cambridge University Press

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