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4. In 1958, A.W. Phillips wrote a famous paper on UK unemployment and inflation. He found that there was a trade-off between these two macroeconomic
4. In 1958, A.W. Phillips wrote a famous paper on UK unemployment and inflation. He found that there was a "trade-off" between these two macroeconomic quantities: lower unemploy- ment tended to be associated with higher inflation, and vice versa. The economic intuition behind this relationship is that when unemployment is low, wages tend to increase, which allows firms to raise prices, thereby leading to inflation. Data on the average US unemployment rate and inflation rate for the 1960s (just after the Phillips paper was published) and the 2010s is given below, and an Excel spreadsheet and a STATA dataset containing this data are on the course Sakai page. Compute the correlation between unemployment and inflation for the US in each of these decades. Year Unemp Inflation Year Unemp Inflation 1960 5.54 1.39 2010 9.61 1.45 1961 6.69 0.68 2011 8.93 3.08 1962 5.57 1.25 2012 8.08. 1.80 1963 5.64 1.66 2013 7.36 1.54 1964 5.16 1.20 2014 6.16 0.67 1965 4.51 1.94 2015 5.28 0.69 1966 3.79 3.38 2016 4.88 2.10 1967 3.84 3.31 2017. 4.35 2.14 1968 3.56 4.72 2018 3.89 1.95 1969 3.49 5.92 2019. 3.68 2.30
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