Abstract

Since Phillips’ paper in 1958, the  literature Phillips curve has witnessed many changes. With a new look, the present study pursues to explain inflation shocks and their relation with unemployment, using a time series data for the period 1965-2005. In this framework, the effects of changes in labor, commodity and money markets on inflation fluctuations are investigated. The unobservable variables of potential production, expected inflation and expected unemployment are estimated using the Hodrick-Prescott filter. The methodology based on Fomby’s approach, which selects suitable time series model, results in estimating the VAR model. The results suggest lack of any significant relation between unemployment and inflation fluctuations. The international evidences suggest that  the Phillips curve  exists in the nearly full employment conditions. The long stagflation in Iran may be the reason for our finding of the lack of such a relation.