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James Forder

86  The Phillips curve James Forder The general idea that wages might rise quickly when unemployment is particularly low, and hence that there would be a negative relationship between inflation and unemployment is certainly an old one. Intimations of it – including the idea that there might be occasions when inflation would be an effective remedy to unemployment – can therefore be found scattered in the writings of Keynes, as they can in the work of most eminent economists, engaged with policy-making, who wrote more than the driest journal articles (Friedman

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R. Quentin Grafton, Harry W. Nelson, N. Ross Lambie and Paul R. Wyrwoll

An apparent inverse relationship between the rate of increase in wages and the unemployment rate that was first observed by Alban Phillips in a paper published in 1958. The implication of the so-called Phillips curve is that there exists a trade-off between the rate of increase in the price level and unemployment.

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Edited by Louis-Philippe Rochon and Sergio Rossi

The Phillips curve is the idea that (wage or price) inflation is positively related to economic activity and to the expected rate of inflation. The Phillips curve takes its name from Alban William Phillips, a New-Zealand-born economist. Phillips ( 1954 ) made the theoretical postulate that price inflation was a positive function of output; whereas in Phillips ( 1958 ) he produced an empirical negative relationship (observed for the United Kingdom) between wage inflation and the rate of unemployment. Following Friedman ( 1968 ) and Phelps ( 1967 ), the

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Edited by Thomas Cate

From the early 1960s, macroeconomics became organized around the Phillips Curve trade-offs between inflation and unemployment; from the mid-1970s, the Natural-Rate Expectations Augmented Phillips (N-REAP) Curve model has dominated policy thinking. The N-REAP model is anti-Keynesian, in that it suggests that increasing unemployment is an appropriate method of reducing inflation, thus allowing the unemployment rate to fall back to its ‘natural’ level, at a lower rate of inflation. The Phillips Curve trade-off was pseudo-Keynesian, in that it

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Richard T. Froyen and Alfred V. Guender

Optimal Monetary Policy under Uncertainty, Second Edition 8. The Phillips Curve: an evolving concept INTRODUCTION The label “New Keynesian” suggests that the new framework features a nominal rigidity that is instrumental in propagating the effects of shocks to the economy. Because of the existence of this nominal rigidity, a change in the stance of monetary policy, too, leads to predictable changes in real output. Traditional Keynesian models and the New Keynesian framework differ on the exact nature of this nominal rigidity. Earlier Keynesian

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The “Phillips Curve” and inflation

The Life and Work of Arthur (A.J.) Brown

Kenneth Button

The Value of Applied Economics 6.  The “Phillips Curve” and inflation INTRODUCTION Arthur Brown was involved in one of the more challenging elements of immediate post-World War II economics: explaining the causes of inflation and providing an understanding of the information needed to design anti-inflation policies. The need for maximizing wartime production had pushed matters of inflation into the background and, mentally, the Great Depression had earlier suppressed it as a problem in society’s collective memory. This is not to say that Keynes had not

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Richard G. Lipsey

50. The Phillips curve Richard G. Lipsey Two distinct theories concerning the disequilibrium relation between the real variables of income and unemployment on the one hand and the money variables of wage rates and prices on the other hand have been around for a long time in the economics literature. In Theory 1, the causal relation runs from money to real variables: changes in the money price level and the money wage rate cause changes in income and unemployment. In Theory 2, the causal relation is reversed: changes in the real variables of income and

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Don Bellante

53 The Phillips curve Don Bellante Conceptual development The Phillips curve is named after the British economist A.W. Phillips (1958), who in a pathbreaking article investigated the statistical relationship in the UK between the annual rate of change of money wages and the annual rate of unemployment. Later versions of the Phillips curve examined the relationship between unemployment or the rate of growth of output and, alternatively, the rate of change of product prices, and the deviation between actual and ‘expected’ inflation. Inasmuch as the Phillips curve

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Antonella Stirati and Walter Paternesi Meloni

1 INTRODUCTION A major contribution of Friedman's 1968 presidential address was the long-run vertical Phillips curve: the combination of an ‘accelerationist’ view of inflation and the notion of an equilibrium unemployment rate that, by definition, is the only unemployment rate at which inflation does not accelerate. This view, which is consistent with neoclassical foundations, has become so profoundly entrenched in macroeconomists’ way of thinking that considerable contrary evidence, and increasing acknowledgment of the possibility of ‘hysteresis’, has not really

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Thomas Palley

combine to lock-in ideas once they have taken root. Milton Friedman's 1967 presidential address to the American Economic Association (AEA), titled ‘The role of monetary policy’ ( Friedman 1968 ), marked a hysteretic fork in the road of ideas. In it, Friedman argued for abandoning Keynesian Phillips curve theory and adopting his natural rate of unemployment (NRU) hypothesis – also known as the non-accelerating inflation rate of unemployment (NAIRU) hypothesis. The economics profession bought into Friedman's hypothesis, and that has significantly shaped the course of