Abstract
In this paper we investigate whether the long-run relationship between inflation and unemployment has changed since Paul Volcker's appointment as Chairman of the Fed. Long-horizon vector autoregressive forecast errors provide evidence of a positive long-run relationship for the period of rising inflation, but no long-run relationship for the subsequent two decades of falling inflation. This suggests the model of discretionary monetary policy of Barro and Gordon (Journal of Political Economy, Vol. 91 (1983), pp. 589–610) is rejected in the latter period.
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