Assignment 4
1. The Phillips Curve (a) The Output Gap and the Inflation Rate series are shown in figure 1. Using the Excel formula “=correl”, we find the correlation between these two variables to be -0.00206. The correlation coefficient ranges from -1 to 1, the closer the coefficient is to the extremes, the stronger is the linear relationship between the two variables. In this case, the correlation coefficient is close to zero, so there is almost no relationship between Ygap and Pi. Figure 1
The Output Gap and the Inflation Rate series in 1955 – 2015
(b) Figure 2 shows the Output Gap and the change in the Inflation Rate series. Again, using ...
