Philips Curve

Negative relation between unemployment and inflation is known as the Philips model, which states, when inflation is high, unemployment gently decries and when unemployment is low, salaries will increase rapidly. While economic planners of the country tend to impart this situation highly, it would fall down, because frequent increase of inflation with the hope of keeping unemployment low permanently, ultimately will cause rise in expected inflation of organizations and lead to change in their recruitment decisions. In a section of this model, it has also analyzed, relation between income, investment, and consumption. Regular Philips model with derivative deals with first and second level of calculations, however this model has faced many weaknesses and deficiencies in economic cycle of Iran. Regarding its implementation in the economy of Iran, in this research, through substitution of Caputo fractional-order derivatives, we reach out “Philips model of Fractional-order”. Moreover, by numerical calculation of resulted equations and using Maple software, we over reach to Philips curve of Fractional-order in multiple various orders. According to achieved results, this model highly depends on derivation orders and different outcomes will be acquired through various derivation orders. Acquired model in the economy of Iran (situational format in Sugar and Sugar cube Industries) has been studied through phasic technic which proves meaningfulness of relations between variables of the model.

This paper attempts to compare a Markov-Switching Dynamic Stochastic General Equilibrium (MS-DSGE) model by including deep habits consumption to a MS-DSGE model without deep habits. It is concluded that the deep habit adjusted model with regime switching is able to fit the Iranian data better. The results of estimating parameters indicate that deep habit formation, together with the persistence of habit stock, are significant parameters. The results also confirm that current and future consumption demand, expected marginal cost and stock of habits are effective driving forces in extracted New Keynesian Philips Curve considering deep habits. However, in contrast with Ravn et al (2006, 2010) findings, it is shown that presence of deep habit consumption in the model for Iranian economy, cannot lead to reduce inflation in response to monetary shock while the amount of increase in inflation in response to monetary shock in the model with deep habit is less than inflation increase in model without deep habits. Furthermore, in response to fiscal shock in the model considering deep habits, the negative effect of wealth could not be compensated in Iranian economy. Therefore, consumption begins to decrease in response to fiscal shock, although these reduction in the model without deep habits takes more longer than in the model with deep habits.