Phillips Curves and Expectations

The Phillips Curve and its

Modifications

The Phillips Curve and its

Modifications

Phillips Curve and its ModificationsPhillips Curve and its Modifications

The originalPhillips curveThe original

Phillips curve

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9

0 1 2 3 4 5 6

The original Phillips curveThe original Phillips curve

Unemployment (%)

Wa

ge in

flatio

n (

%)


The unemployment- inflation relationship since the late 1960s

The unemployment- inflation relationship since the late 1960s

Inflation (%)

Unemployment (%)

The breakdown of the Phillips curve?The breakdown of the Phillips curve?

6763

6265

6664

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61

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0 1 2 3 4 5 6 7 8 9 10 11 12 13

Inflation (%)

Unemployment (%)


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Original Phillips curve

74

7173

7072

Inflation (%)

Unemployment (%)


6968

6763

6265

6664

60

61

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0 1 2 3 4 5 6 7 8 9 10 11 12 13

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74

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7173

7072

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Inflation (%)

Unemployment (%)


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6763

6265

6664

60

61

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0 1 2 3 4 5 6 7 8 9 10 11 12 13

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74

8076

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7173

7072

78 82

8384

85

81

Inflation (%)

Unemployment (%)


6968

6763

6265

6664

60

61

75

74

8076

77

79

7173

7072

78

90

89

9188

95

82

8384

85

86

93

8792

94

81

Inflation (%)

Unemployment (%)


6968

6763

6265

6664

60

61

0

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0 1 2 3 4 5 6 7 8 9 10 11 12 13

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0 1 2 3 4 5 6 7 8 9 10 11 12 13

75

74

8076

77

79

7173

7072

78

90

89

9796

9188

95

82

8384

85

86

93

8792

94

81

Inflation (%)

Unemployment (%)


6968

6763

6265

6664

60

6199

9800

01

03

02


A short-runPhillips curveA short-run

Phillips curve

O

P (%).

U (%)

aP1

.

U1

P2

.

U2

A Phillips curveA Phillips curve

b


The accelerationist theory of inflation

The accelerationist theory of inflation

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4

8

12

16

20

0

P (%).

U (%)6 8I (Pe = 0)

.

b

The accelerationist theory of inflationThe accelerationist theory of inflation

a

IV (Pe = 12%).

III (Pe = 8%).

II (Pe = 4%)

P (%).

U (%)6

a

b c

d

8I (Pe = 0)

.

.

e

The accelerationist theory of inflationThe accelerationist theory of inflation

f

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0


A vertical long-run Phillips curve

A vertical long-run Phillips curve

Un

0

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12

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20

0

P (%).

U (%)6 8

The long-run Phillips curveThe long-run Phillips curve


The effects of deflationary policy

The effects of deflationary policy

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P (%).

U (%)8 13

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X (Pe = 20%).

k

The effects of deflationThe effects of deflation

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P (%).

U (%)8 13

k

X (Pe = 20%).

XI (Pe = 18%).

XII (Pe = 16%).

l

J

m


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P (%).

U (%)8 13

k

l

m

a

J



Phillips loopsPhillips loops

Year 20

20

0

P (%).

U (%)Un

ab

c

Year 0, 1

Clockwise Phillips loopsClockwise Phillips loops

Year 5

Year 4

0

20

0

P (%).

U (%)Un

ab

c

d

ef

Year 0, 1

Year 2

Year 3


0

20

0

P (%).

U (%)Un

ab

c

d

ef

h

i

J

Year 0, 1, 10

Year 2, 9

Year 3, 8

Year 4, 7

Year 5, 8

g



Phillips loopsin the UK?

Phillips loopsin the UK?

Inflation (%)

Unemployment (%)

6763

6265

6664

60

61

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Phillips loops in the UK?Phillips loops in the UK?

Inflation (%)

Unemployment (%)

6763

6265

6664

60

61

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Original Phillips curve


0

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0 1 2 3 4 5 6 7 8 9 10 11 12 13

74

7173

7072

Inflation (%)

Unemployment (%)

6968

6763

6265

6664

60

61


0

2

4

6

8

10

12

14

16

18

20

22

24

26

0 1 2 3 4 5 6 7 8 9 10 11 12 13

75

74

8076

77

79

7173

7278

90

89

97

96

9188

95

82

8384

85

86

93

8792

94

81

Inflation (%)

Unemployment (%)

99

98


0001

02

Phillips Curves and Expectations

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Transcript of Phillips Curves and Expectations