engleski

The Challenge of Application of Phillips Curve: Case of Croatia

In this paper hypothesis of relation between unemployment and the rate of change in prices is tested in Croatia with data spanning from 1962 to 2004. Empirical test is designed with a goal of testing the original Phillips curve developed in 1958 by A. W. Phillips and adaptive expectation augmented Phillips curve designed by Edmund S. Phelps in 1967. Furthermore, since both, classical and augmented versions of the relationship were designed for the US economy ; a new theory of accommodation through insolvency is suggested for the Croatian economy. According to the new theory, during the pre-transitional period, due to doctrinaire system’ s foundations, economy has accommodated to slowdown through increased insolvency instead of increase in unemployment. Insolvency as an “ original invention” of a socialist economic system in fact defined a situation in which actually bankrupted companies were not allowed to be liquidated. On the other hand, in the transitional period, both reasons that have created environment in which accommodation through insolvency occurred have disappeared. Thus it might be suggested that transition has created an environment in which there is a possibility for a move toward accommodation through unemployment, or reestablishment of Phillips curve relationship in the Croatian economy. Unfortunately empirical findings in our research show otherwise.

unemployment; prices; Croatia

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