This section provides an example of how demand-side policy might affect aggregate supply through a shift in the Phillips curve
. Using a simple model of NGDP targeting, we analyze how the rates of inflation and RGDP growth might respond to an economic shock if inflation following the shock were to cause a shift in the Phillips curve
Many on the FOMC believe the Phillips Curve
relationship between the jobless rate and wage increases is broken, or at least not useful in this cycle following the out-sized outflow of workers from the labor force through the last downturn.
* Michael McLeay, Bank of England, and Silvana Tenreyro, London School of Economics, "Optimal Inflation and the Identification of the Phillips Curve
These standard Phillips curve
models, which incorporate expectations about future inflation, have in the past performed reasonably well in tracking inflation.
Most prominent is the apparent breakdown of the Phillips curve
. Throughout this article, I will use the term "Phillips curve
" relationship broadly--not just to capture the relationship between unemployment and wage growth shown by William Phillips in his original curve--but instead to capture the more general relationship between the amount of slack (or spare capacity) in the economy and price inflation.
One tool economists use to predict inflation during recessions is the Phillips curve
. The Phillips curve
explains the inverse relationship between inflation and unemployment.
The Phillips curve
is telling them that inflation should be higher and rising.
He said it runs counter to an economic theory known as the "Phillips curve
," which argues that low unemployment forces employers to push up wages to compete for scarce workers, triggering more inflation.
Abstract I do not see it as likely that the Phillips curve
is dead, or that it will soon exact revenge.
We even name our curves: the Phillips Curve
, the Laffer Curve, the Yield Curve, and the Great Gatsby Curve.
The Phillips curve
in the UK has now to be rewritten into wage underemployment space.