Unemployment

There is a principal assumption of the existence of a tight link between inflation and unemployment known as the Phillips curve. The concept of the Phillips curve serves as a basis for many macroeconomic models and business cycle theories. There is no "completely satisfactory explanation" [Mankiw, 2000] of this virtual tradeoff, however. Existing models meet severe problems to explain some outstanding features of the presumed tradeoff between inflation and unemployment, such as, for example, stagflation and disinflation accompanying decreasing unemployment, without using some exotic exogenous forces or shocks. This lack of proof or demonstration of even a weak empirical confirmation of the relationship does not prevent "central bankers and monetary economists" [Mankiw, 2000] from adhering to its usage in practice. Hence, any clear explanation of the existence of tradeoff between inflation and unemployment, or its absence, in which case the bankers, monetary policy-makers and economists are wrong in their unproven assumption, is of great value. We show below that there is no tradeoff between unemployment and inflation. Fortunately, the period between 1990 and 2010 is characterized by just minor changes of the studied variables. This is what makes current policy so "successful". There are some challenges arising in near future, however.

In the first section, we argue that the presumed relationship between