Essentials of Economics, 3rd ed

1
The Phillips Curve and its Modifications
2
Phillips Curve and its Modifications

• The original
• Phillips curve

3
The original Phillips curve
Wage inflation ()
Unemployment ()
4
Phillips Curve and its Modifications

• The unemployment- inflation relationship since
  the late 1960s

5
Inflation ()
The breakdown of the Phillips curve?
65
62
66
61
67
64
63
60
Unemployment ()
6
Inflation ()
The breakdown of the Phillips curve?
65
62
66
61
67
64
63
60
Unemployment ()
7
Inflation ()
The breakdown of the Phillips curve?
74
71
73
72
70
69
65
68
62
66
61
67
64
63
60
Unemployment ()
8
Inflation ()
The breakdown of the Phillips curve?
75
76
74
77
79
71
73
78
72
70
69
65
68
62
66
61
67
64
63
60
Unemployment ()
9
Inflation ()
The breakdown of the Phillips curve?
75
80
76
74
77
79
81
71
73
82
78
72
70
85
84
69
65
83
68
62
66
61
67
64
63
60
Unemployment ()
10
Inflation ()
The breakdown of the Phillips curve?
75
80
76
74
77
79
81
90
71
73
82
78
89
72
70
91
85
84
69
88
65
83
68
87
62
66
95
86
92
61
94
67
64
93
63
60
Unemployment ()
11
Inflation ()
The breakdown of the Phillips curve?
75
80
76
74
77
79
81
90
71
73
82
78
89
72
70
91
85
84
69
88
65
83
68
87
62
98
66
00
95
86
97
92
03
61
94
67
64
96
93
99
63
02
01
60
Unemployment ()
12
Phillips Curve and its Modifications

• A short-run
• Phillips curve

13
A Phillips curve
.
P ()
O
U ()
U1
14
Phillips Curve and its Modifications

• The accelerationist theory of inflation

15
The accelerationist theory of inflation
.
P ()
U ()
6
8
16
The accelerationist theory of inflation
.
P ()
b
.
a
.
U ()
6
8
I (Pe 0)
17
Phillips Curve and its Modifications

• A vertical long-run Phillips curve

18
The long-run Phillips curve
.
P ()
U ()
6
8
Un
19
Phillips Curve and its Modifications

• The effects of deflationary policy

20
The effects of deflation
.
P ()
.
X (Pe 20)
U ()
8
13
21
The effects of deflation
.
P ()
J
k
.
X (Pe 20)
.
XI (Pe 18)
U ()
8
13
22
The effects of deflation
.
P ()
J
k
l
m
a
U ()
8
13
23
Phillips Curve and its Modifications

• Phillips loops

24
Clockwise Phillips loops
.
P ()
U ()
Un
Year 0, 1
25
Clockwise Phillips loops
.
P ()
c
Year 3
b
a
Year 2
U ()
Un
Year 0, 1
26
Clockwise Phillips loops
.
P ()
f
e
d
Year 5, 8
c
Year 4, 7
Year 3, 8
b
a
Year 2, 9
U ()
Un
Year 0, 1, 10
27
Phillips Curve and its Modifications

• Phillips loops
• in the UK?

28
Inflation ()
Phillips loops in the UK?
65
62
66
61
67
64
63
60
Unemployment ()
29
Inflation ()
Phillips loops in the UK?
65
62
66
61
67
64
63
60
Unemployment ()
30
Inflation ()
Phillips loops in the UK?
74
71
73
72
70
69
65
68
62
66
61
67
64
63
60
Unemployment ()
31
Inflation ()
Phillips loops in the UK?
75
80
76
74
77
79
81
90
71
73
82
78
89
72
91
85
84
88
83
87
98
95
97
86
00
92
94
01
96
93
99
02
Unemployment ()
32
Inflation ()
Phillips loops in the UK?
75
80
76
74
77
79
81
90
71
73
82
78
89
72
91
85
84
88
83
87
98
95
97
86
00
92
94
01
96
93
99
02
Unemployment ()
33
Inflation ()
Phillips loops in the UK?
75
80
76
74
77
79
81
90
71
73
82
78
89
72
91
85
84
88
83
87
98
95
97
86
00
92
94
01
96
93
99
02
Unemployment ()
34
Inflation ()
Phillips loops in the UK?
75
80
76
74
77
79
81
90
71
73
82
78
89
72
91
85
84
88
83
87
98
95
97
86
00
92
94
01
96
93
99
02
Unemployment ()
35
Inflation ()
Phillips loops in the UK?
75
80
76
74
77
79
81
90
71
73
82
78
89
72
91
85
84
88
83
87
98
95
97
86
00
92
94
01
96
93
99
02
Unemployment ()
36
Inflation ()
Phillips loops in the UK?
75
80
76
74
77
79
81
90
71
73
82
78
89
72
91
85
84
88
83
87
98
95
97
86
00
92
94
01
96
93
99
02
Unemployment ()