Is the Phillips curve stable?
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Is the Phillips curve stable? a time-varying parameter approach by Roger K. Conway

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Published by U.S. Dept. of Agriculture, Economic Research Service, Natural Resource Economics Division in Washington, D.C .
Written in English


  • Phillips curve.,
  • Unemployment -- United States -- Effect of inflation on -- Mathematical models.

Book details:

Edition Notes

StatementRoger K. Conway, Gurmukh S. Gill.
SeriesERS staff report -- no. AGES 861209., ERS staff report -- no. AGES 861209.
ContributionsGill, Gurmukh Singh, 1930-, United States. Dept. of Agriculture. Natural Resource Economics Division.
The Physical Object
Paginationiv, 24 p. :
Number of Pages24
ID Numbers
Open LibraryOL17784553M

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Get this from a library! Is the Phillips curve stable?: a time-varying parameter approach. [Roger K Conway; Gurmukh Singh Gill; United States. Department . “The Phillips curve is the connective tissue between the Federal Reserve’s dual mandate goals of maximum employment and price stability. Despite regular declarations of its demise, the Phillips curve has endured. It is useful, both as an empirical basis for forecasting and for monetary policy analysis.”. The Instability of the Phillips Curve. During the s, the Phillips curve was seen as a policy menu. A nation could choose low inflation and high unemployment, or high inflation and low unemployment, or anywhere in between. Fiscal and monetary policy could be used to move up or down the Phillips curve as desired. Then a curious thing happened. The Phillips Curve shows that wages and prices adjust slowly to changes in AD due to imperfections in the labour market. e.g. Assume: Initially, the economy is in equilibrium with stable prices and unemployment at NRU (U *) (Fig. ). If Money supply increases by 10%, with price level constant, real money supply (M/P) will increase.

The NAIRU in Theory and Practice Laurence Ball and N. Gregory Mankiw N would trace a nice, stable, downward-sloping Phillips curve. There once was a time when some economists took this possibility seriously, but data since the early s have made this simple view Size: KB. While many economists at the time believed that the Phillips curve was a stable relationship and did not subscribe to the monetarists’ point of view, the situation changed in the s. Indeed, while the data in the s clearly supported the idea of a Phillips curve (as shown in Figure 1 . The Phillips curve is also relatively steep in the Great Inflation samples, with 1 extra percentage point of lower unemployment converting into roughly 1/2 percentage point of higher inflation. Thus, the Great Inflation presented that nasty case just described. Above are four graphs, and below are four economic scenarios, each of which would cause either a movement along the short-run or long-run Phillips curve or a shift in the short-run or long-run Phillips curve. Match each scenario with the appropriate graph.

The Short-Run Phillips Curve Goes Awry. The effort to nudge the economy back down the Phillips curve to an unemployment rate closer to the natural level and a lower rate of inflation met with an unhappy surprise in Unemployment increased as expected. But inflation rose! The inflation rate rose to % from its rate of %. We establish that the Phillips curve is persistence-dependent: inflation responds differently to persistent versus moderately persistent (or versus transient) fluctuations in the unemployment gap. Previous work fails to model this dependence, so it finds numerous “inflation puzzles”—such as missing inflation/disinflation—noted in the literature. Our model specification eliminates these.   The Discovery of the Phillips Curve. In the s, A.W. Phillips, an economist at the London School of Economics, was studying the Keynesian analytical Keynesian theory implied that during a recession inflationary pressures are low, but when the level of output is at or even pushing beyond potential GDP, the economy is at greater risk for : Steven A. Greenlaw, David Shapiro. The Phillips curve shows a stable inverse relationship between the rates of inflation and unemployment. During the s and 80s, the Phillips curve began to lose its appeal, as it was believed to be a transitory, short-run relationship.