Argentine Inflation: An Application of the Phillips Curve

Inflation and unemployment rates remain relatively high in post-recession Argentina, posing a significant obstacle to long run recovery. This paper examines whether a short- run Phillips curve can be used in Argentina to predict the inflation-unemployment tradeoff often used in modern macroeconomic forecasting. The model proposed is explicitly forward looking and uses the unemployment gap, based on the non accelerating inflation rate of unemployment (NAIRU). The model analyzes Argentine inflation, expected inflation, the unemployment gap, and world wide industrial prices using quarterly statistics from the International Monetary Fund from years 2002- 2011. Results were mixed, with expected inflation and industrial prices being shown to have a positive correlation with inflation. The unemployment gap produced insignificant results with an unexpected coefficient (expected coefficient was negative), and could not be shown to have an effect on inflation. Discussion will emphasize theoretical causes of inflation and unemployment in the context of the current macroeconomy and how they can or cannot be explained by the Phillips curve