The Phillips Curve Is a Relationship in Macroeconomics Between the Inflation

question 10

Essay

The Phillips curve is a relationship in macroeconomics between the inflation rate (inf)and the unemployment rate (ur). Estimating the Phillips curve using quarterly data for the United States from 1962:I to 1995:IV, you find $\widehat{\text { Inf t}}$ = 4.08 + 0.118 ur_t, R² = 0.003, SER = 3.148
(1.11)(0.176)
(a)Explain why, at first glance, this is a surprising result.
(b)Do you think that there is omitted variable bias in the regression?
(c)What other threats to internal validity may be present?
(d)If you could find a proper specification for the Phillips curve using United States data, what external validity criteria would you suggest?

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Definitions:

Consolidated Financial Statements

Financial statements that aggregate the financial information of a parent company and its subsidiaries as if they were a single entity.

Parent

A term used to refer to a company that owns more than half of another company, making the latter a subsidiary.

Subsidiary Companies

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Stock Investments Account

An account that records the cost of stocks that have been purchased as investments by a company.