Estimation of New- Keynesian Phillips Curve with Co-integration and VAR Methods: The Case of Iran

In this article, using New- Keynesian approach for inflation and unemployment which focuses on the menu costs and rigidity of prices and wages, first a bi-variate system including inflation and unemployment and a tri-variate system with inflation, unemployment and mark-up of the costs of labor force have been estimated. Then the long-term relationship between these variables has been estimated by using co-integration and VAR models. The estimation of these two systems gives a positive and long-term relationship between inflation and unemployment. Also the relationship between inflation and mark-up of the cost of labor force has been estimated which is negative and therefore, there is a positive relation between inflation and unemployment. Such Positive relationship indicates chronic stagnation phenomena in the Iranian Economy.