A note on the joint movements of the Phillips and beveridge curves

In his recent study Blanchard (1989) investigates the nature and origin of persistent unemployment by a joint examination of the movements of the Phillips and Beveridge curves. According to Blanchard, the persistence of unemployment can be associated either with the reallocation or the bargaining factors, depending upon the degree of correlation between the shifts in the Phillips and Beveridge curves: If both curves shift simultaneously this provides support for the reallocation explanation of the rise in the non-accelerating rate of unemployment; if the shifts are not correlated, this implies that the bargaining factors explain the persistence of high unemployment. The aim of the present study is to investigate the usefulness of the testing methodology proposed and employed in Blanchard's study. This is done by examining the robustnesses of the results derived from such an analysis with respect to various specifications of the Phillips and Beveridge curves and different time periods. The analysis is carried out by using aggregate data on the Finnish economy from the period 1960-1987. The main result of the study is that no precise conclusions can be obtained by employing the proposed research strategy.