Construct · 1 fields · 4 citations

Phillips curve: a standalone construct

One name. One construct. A landmark on the map.

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Phillipscurve1 CONSTRUCTPhillips curvePHILLIPS · UNEMP-INFL

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Economics

The inverse short-run relationship between unemployment and inflation

The economist A. W. Phillips documented in 1958, using British data from 1861 to 1957, an inverse statistical relationship between the unemployment rate and the rate of change of money wages: when unemployment was low, wages tended to rise faster, and when unemployment was high, wage growth slowed. Paul Samuelson and Robert Solow named the relationship in 1960 and restated it in terms of price inflation rather than wage inflation, presenting it as a possible menu of combinations of unemployment and inflation that policymakers might weigh against each other. Milton Friedman (1968) and Edmund Phelps (1967) argued that any such trade-off holds only in the short run, because once workers and firms come to expect a given rate of inflation they adjust their behaviour, so over the long run unemployment tends toward a natural rate that does not depend on inflation. The Phillips curve is one of the most studied empirical regularities in macroeconomics: it ties the labour market to the price level in a single relationship, and expectations-augmented forms of it remain a standard component of models used to describe inflation dynamics and to frame monetary policy.[1][2][3][4]

Unit
A relationship between an unemployment rate and a rate of inflation (originally wage inflation), usually plotted as a downward-sloping curve
Recovery means
Not applicable
Measured by
Estimated by regressing an inflation or wage-growth measure on the unemployment rate, and in expectations-augmented forms also on expected inflation, over time or across regions

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Nearby constructs

inflation3 fields · 4 citationsjingle · one word, three constructsrational expectations3 fields · 4 citationsjingle · one word 'rational,' different claimscomponent3 fields · 5 citationsjingle · one word, three constructs

References

  1. Phillips, A. W. (1958). The relation between unemployment and the rate of change of money wage rates in the United Kingdom, 1861–1957. Economica, 25(100), 283–299. https://doi.org/10.1111/j.1468-0335.1958.tb00003.x
  2. Samuelson, P. A., & Solow, R. M. (1960). Analytical aspects of anti-inflation policy. The American Economic Review, 50(2), 177–194.
  3. Friedman, M. (1968). The role of monetary policy. The American Economic Review, 58(1), 1–17.
  4. Phelps, E. S. (1967). Phillips curves, expectations of inflation and optimal unemployment over time. Economica, 34(135), 254–281. https://doi.org/10.2307/2552025

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