Share This Article:

Mystery of Modern Phillips Curve

Full-Text HTML Download Download as PDF (Size:605KB) PP. 907-914
DOI: 10.4236/me.2012.38113    4,660 Downloads   6,431 Views   Citations
Author(s)    Leave a comment

ABSTRACT

The modern Phillips curve is about the relationship between inflation and unemployment and has been the center of a fierce debate in economics over fifty years. This paper reports empirical evidence that uncovers some of its mysteries. The rate of inflation and the unemployment rate are closely related to business cycles. What is of interest is that no two business cycles are exactly alike; however, all business cycles are essentially alike [1,2]. Each expansion is ended by a recession induced by adverse shocks. The U.S. economy suffers from adverse shocks all the time, but not every shock gives rise to a recession. Why do adverse shocks often induce a recession after an expansion that has lasted for a substantial duration? That is, why are double-dip recessions so rare? Here do we find important evidence in the Phillips curve that may help answer this question. We also discuss some issues related to the monetary policy and raise a few open questions about the relationship between unemployment and business cycles.

Cite this paper

J. Ma, "Mystery of Modern Phillips Curve," Modern Economy, Vol. 3 No. 8, 2012, pp. 907-914. doi: 10.4236/me.2012.38113.

References

[1] G. W. Stadler, “Real Business Cycles,” Journal of Economics Literature, Vol. XXXII, 1994, pp. 1750-1783.
[2] R. E. Lucas, “Studies in Business Cycle Theory,” The MIT Press, Cambridge, 1981.
[3] A. W. Phillips, “The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957,” Economica, Vol. 25, No. 100, 1958, pp. 283-299.
[4] R. G. King and M. W. Watson, “The Post-War US Phillips Curve: A Revisionist Econometric History,” Carnegie-Rochester Conference Series on Public Policy, Vol. 41, No. 1, 1994, pp. 157-219.
[5] P. A. Samuelson and R. M. Solow, “Analytical Aspects pf Anti-Inflation Policy,” American Economic Review, Vol. 50, No. 2, 1960, pp. 177-194.
[6] M. Friedman, “The Role of Monetary Policy,” American Economic Review, Vol. 58, No. 1, 1968, pp. 1-17.
[7] E. S. Phelps, “Phillips Curves, Expectations of Inflation and Optimal Unemployment over Time,” Economica, Vol. 34, No. 135, 1967, pp. 254-281. doi:10.2307/2552025
[8] E. S. Phelps, “Money-Wage Dynamics and Labor-Market Equilibrium,” Journal of Political Economy, Vol. 76, No. 4, 1968, pp. 678-711. doi:10.1086/259438
[9] J. Gal?? and M. Gertler, “Inflation Dynamics: A Structural Econometric Analysis,” Journal of Monetary Economics, Vol. 44, No. 2, 1999, pp. 195-222. doi:10.1016/S0304-3932(99)00023-9
[10] F. Schorfheide, “DSGE Model-Based Estimation of the New Keynesian Phillips Curve,” Economic Quarterly, Vol. 94, No. 4, 2008, pp. 397-433.
[11] G. Calvo, “Staggered Prices in a Utility-Maximizing Framework,” Journal of Monetary Economics, Vol. 12, No. 3, 1983, pp. 383-398. doi:10.1016/0304-3932(83)90060-0
[12] R. E. Lucas, “Econometric Policy Evaluation: A Cri- tique,” Carnegie-Rochester Conference Series on Public Policy, Vol. 1, No. 1, 1976, pp. 19-46. doi:10.1016/S0167-2231(76)80003-6
[13] O. Blanchard, “Macroeconomics,” Prentice Hall, Upper Saddle River, 1997.
[14] K. E. Case, R. C. Fair and S. M. Oster, “Principles of Macroeconomics,” 9th Edition, Prentice Hall, Upper Saddle River, 2008.
[15] P. Temin. “The Causes of American Business Cycles: An Essay in Economic Historiography,” NBER working paper series, Cambridge, 1998.

  
comments powered by Disqus

Copyright © 2017 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.