The Korean Journal of Economic Studies
Changes in the Macroeconomic Relationships among Output, Employment and Prices
Junseok Lee (Seoul National University), Yongsung Chang (Seoul National University) and Youngdoo Choi (Seoul National University)Year 2022Vol. 70No. 1
AbstractWe study two important relationships in macro economic analysis: (i) co-movment between output and employment (the so-called Okun’s law) and (ii) the trade-off between inflation and unemployment rate (the Phillips Curve). We find that there have been important changes in these relationships in the last 30 years in both U.S. and South Korea. The co-movment between output and employment has weakened significantly, often coined as the “jobless recoveries.” The Phillips Curve has shifted as well. In particular, the slope has flattened over time and even becomes a negative since 2000 in Korea and since 2010 in the U.S., respectively. We argue that these changes present a big challenge to policy makers.