What Drives US Inflation and Unemployment in the Long Run?

There is a growing consensus on the existence of a positive, long-run relation
between inflation and unemployment in the US economy. However, the conclusion that the
two variables move in the same direction at low frequencies leaves open the question of the
identification of the factors - real or, alternatively, monetary - underlying this co-movement.
In this paper we try to shed light on this question by adopting a structural VAR agnostic
approach. The main conclusion is that in the postwar US economy an important role has
been played by supply shocks in shaping the long-run evolution of unemployment. Thus, it
seems that this evidence is at odds with purely monetary explanation of the co-movement
between inflation and unemployment.