Germany's Economic Policy Revolution: Unemployment-Inflation Link Challenges Traditional Models
The study looked at how inflation and unemployment are related in Germany over time. They found that in West Germany, there was a strong negative link between inflation and unemployment after the late 1970s. This goes against the idea that there is a fixed natural rate of unemployment. The researchers used a special model to account for this and found that a policy responding quickly to rising unemployment works better in a model with these characteristics.