The Phillips Curve and The Great Recession : A cross-section comparison among eight European countries between 2000-2017

Sammanfattning: The idea behind this bachelor thesis comes from findings of a study made by L. M. Ball & Mazumder (2011). After 2008, the unemployment rate in the U.S started to rise which according to predictions from the Phillips inflation should turn into deflation. Although, the U.S faced a different outcome. The results from their study indicated that the Phillips curve has been performing poorly after the Great Recession and they stated that the credibility of the Phillips curve can be questioned. This study aims to analyze the relationship between the unemployment rate and inflation, known as the Phillips curve, in eight European countries. It further aims to investigate if the Great Recession had any effect on the relationship. This is made by using annual data over the time period of 2000-2017. The results show that there exist country-specific differences in four out of the eight countries included in the study. It also shows that the relationship between unemployment and inflation is weakest in Italy and strongest in France. Furthermore, the study could show that the relationship had become stronger after the Great Recession in France, Finland, and Italy.