Phillips Curves And Expectations
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The Phillips Curve and its Modifications
Phillips Curve and its Modifications
The original Phillips curve
The original Phillips curve 9 8
Wage inflation (%)
7 6 5 4 3 2 1 0 0
1
2
3
Unemployment
4
5
6
Phillips Curve and its Modifications
The unemploymentinflation relationship since the late 1960s
Inflation (%)
The breakdown of the Phillips curve?
26 24 22 20 18 16 14 12 10 8 6
65 6662 61 64 67 63 60
4 2 0 0
1
2
3
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26 24 22 20 18 16 14 12 10 8 6
Original Phillips curve
65 6662 61 64 67 63 60
4 2 0 0
1
2
3
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26 24 22 20 18 16
74
14 12 10
7 1
7 3
8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
3
7 2
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
76
16
74
77
14
79
12 10
7 1
7 3
8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
3
78
7 2
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
76
16
74
80
77
14
79
12
81
10
7 1
7 3
8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
3
82
78
7 2
85
4
5
6
7
8
9
10
11
84
12
83
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
76
16
74
80
77
14
79
12
81
10 8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
90
7 1
7 3
3
7 2
82
89
78
91 88 95
85
94
87 92
84
83
86
93 4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
90
7 1
7 3
3
7 2 00 03
98
02
99
01 4
5
6
82
89
78
91 88 95
97
7
96
8
85
94
87 92
84
83
86
93 9
10
11
12
13
Unemployment (%)
Phillips Curve and its Modifications
A short-run Phillips curve
A Phillips curve
.
P (%)
.
P2
b
.
a
P1
O
U2
U1
U (%)
Phillips Curve and its Modifications
The accelerationist theory of inflation
.
P (%)
The accelerationist theory of inflation
20
16
12
8
b
4
a
0 0
6
8
.
I (Pe = 0)
U (%)
.
P (%)
The accelerationist theory of inflation
20
f
16
e
12
d
8
. IV (Pe = 12%)
b
4
c
.
III (Pe = 8%)
.
a
0 0
6
8
II (Pe = 4%)
.
I (Pe = 0)
U (%)
Phillips Curve and its Modifications
A vertical long-run Phillips curve
.
P (%)
The long-run Phillips curve
20
16
12
8
4
0 0
6
8 U
U (%)
Phillips Curve and its Modifications
The effects of deflationary policy
.
P (%)
The effects of deflation
24 22 J
20
k
18 16
.
14
X (Pe = 20%)
12 10 8 6 4 2 0 0
8
1 3
U (%)
.
P (%)
The effects of deflation
24 22 J
20
k
18 16
l
14
m
.
X (Pe = 20%)
.
12
XI (Pe = 18%)
10
XII (Pe = 16%)
.
8 6 4 2 0 0
8
1 3
U (%)
.
P (%)
The effects of deflation
24 22 J
20
k
18 16
l
14
m
12 10 8 6 4 2
a
0 0
8
1 3
U (%)
Phillips Curve and its Modifications
Phillips loops
.
P (%)
Clockwise Phillips loops
20
c
b a
0 0
Un
Year 2 Year 0, 1
U (%)
.
P (%)
Clockwise Phillips loops
20
f
e d
Year 5 c
Year 4 Year 3 b a
0 0
Un
Year 2 Year 0, 1
U (%)
.
P (%)
Clockwise Phillips loops
20
f
e
g
d
h c i
Year 5, 8 Year 4, 7 Year 3, 8
b a
0 0
Un
J
Year 2, 9 Year 0, 1, 10
U (%)
Phillips Curve and its Modifications
Phillips loops in the UK?
Inflation (%)
Phillips loops in the UK?
26 24 22 20 18 16 14 12 10 8 6
65 6662 61 64 67 63 60
4 2 0 0
1
2
3
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26 24 22 20 18 16 14 12 10 8 6
Original Phillips curve
65 6662 61 64 67 63 60
4 2 0 0
1
2
3
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26 24 22 20 18 16
74
14 12 10
7 1
7 3
8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
3
7 2
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
90
7 1
7 3
78
7 2
6
82
89 91 88
4
00
98
95
97
01
2
02
0 0
1
2
3
4
5
85
94
96
87 92
7
8
83
86
93
99 6
84
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
90
7 1
7 3
78
7 2
6
82
89 91 88
4
00
98
95
97
01
2
02
0 0
1
2
3
4
5
85
94
96
87 92
7
8
83
86
93
99 6
84
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
90
7 1
7 3
78
7 2
6
82
89 91 88
4
00
98
95
97
01
2
02
0 0
1
2
3
4
5
85
94
96
87 92
7
8
83
86
93
99 6
84
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
90
7 1
7 3
78
7 2
6
82
89 91 88
4
00
98
95
97
01
2
02
0 0
1
2
3
4
5
85
94
96
87 92
7
8
83
86
93
99 6
84
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
90
7 1
7 3
78
7 2
6
82
89 91 88
4
00
98
95
97
01
2
02
0 0
1
2
3
4
5
85
94
96
87 92
7
8
83
86
93
99 6
84
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
90
7 1
7 3
78
7 2
6
82
89 91 88
4
00
98
95
97
01
2
02
0 0
1
2
3
4
5
85
94
96
87 92
7
8
83
86
93
99 6
84
9
10
11
12
13
Unemployment (%)
Phillips Curve and its Modifications
The original Phillips curve
The original Phillips curve 9 8
Wage inflation (%)
7 6 5 4 3 2 1 0 0
1
2
3
Unemployment
4
5
6
Phillips Curve and its Modifications
The unemploymentinflation relationship since the late 1960s
Inflation (%)
The breakdown of the Phillips curve?
26 24 22 20 18 16 14 12 10 8 6
65 6662 61 64 67 63 60
4 2 0 0
1
2
3
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26 24 22 20 18 16 14 12 10 8 6
Original Phillips curve
65 6662 61 64 67 63 60
4 2 0 0
1
2
3
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26 24 22 20 18 16
74
14 12 10
7 1
7 3
8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
3
7 2
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
76
16
74
77
14
79
12 10
7 1
7 3
8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
3
78
7 2
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
76
16
74
80
77
14
79
12
81
10
7 1
7 3
8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
3
82
78
7 2
85
4
5
6
7
8
9
10
11
84
12
83
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
76
16
74
80
77
14
79
12
81
10 8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
90
7 1
7 3
3
7 2
82
89
78
91 88 95
85
94
87 92
84
83
86
93 4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
The breakdown of the Phillips curve?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
90
7 1
7 3
3
7 2 00 03
98
02
99
01 4
5
6
82
89
78
91 88 95
97
7
96
8
85
94
87 92
84
83
86
93 9
10
11
12
13
Unemployment (%)
Phillips Curve and its Modifications
A short-run Phillips curve
A Phillips curve
.
P (%)
.
P2
b
.
a
P1
O
U2
U1
U (%)
Phillips Curve and its Modifications
The accelerationist theory of inflation
.
P (%)
The accelerationist theory of inflation
20
16
12
8
b
4
a
0 0
6
8
.
I (Pe = 0)
U (%)
.
P (%)
The accelerationist theory of inflation
20
f
16
e
12
d
8
. IV (Pe = 12%)
b
4
c
.
III (Pe = 8%)
.
a
0 0
6
8
II (Pe = 4%)
.
I (Pe = 0)
U (%)
Phillips Curve and its Modifications
A vertical long-run Phillips curve
.
P (%)
The long-run Phillips curve
20
16
12
8
4
0 0
6
8 U
U (%)
Phillips Curve and its Modifications
The effects of deflationary policy
.
P (%)
The effects of deflation
24 22 J
20
k
18 16
.
14
X (Pe = 20%)
12 10 8 6 4 2 0 0
8
1 3
U (%)
.
P (%)
The effects of deflation
24 22 J
20
k
18 16
l
14
m
.
X (Pe = 20%)
.
12
XI (Pe = 18%)
10
XII (Pe = 16%)
.
8 6 4 2 0 0
8
1 3
U (%)
.
P (%)
The effects of deflation
24 22 J
20
k
18 16
l
14
m
12 10 8 6 4 2
a
0 0
8
1 3
U (%)
Phillips Curve and its Modifications
Phillips loops
.
P (%)
Clockwise Phillips loops
20
c
b a
0 0
Un
Year 2 Year 0, 1
U (%)
.
P (%)
Clockwise Phillips loops
20
f
e d
Year 5 c
Year 4 Year 3 b a
0 0
Un
Year 2 Year 0, 1
U (%)
.
P (%)
Clockwise Phillips loops
20
f
e
g
d
h c i
Year 5, 8 Year 4, 7 Year 3, 8
b a
0 0
Un
J
Year 2, 9 Year 0, 1, 10
U (%)
Phillips Curve and its Modifications
Phillips loops in the UK?
Inflation (%)
Phillips loops in the UK?
26 24 22 20 18 16 14 12 10 8 6
65 6662 61 64 67 63 60
4 2 0 0
1
2
3
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26 24 22 20 18 16 14 12 10 8 6
Original Phillips curve
65 6662 61 64 67 63 60
4 2 0 0
1
2
3
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26 24 22 20 18 16
74
14 12 10
7 1
7 3
8
7 0 69 65 68 6662 61 64 67 63 60
6 4 2 0 0
1
2
3
7 2
4
5
6
7
8
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
90
7 1
7 3
78
7 2
6
82
89 91 88
4
00
98
95
97
01
2
02
0 0
1
2
3
4
5
85
94
96
87 92
7
8
83
86
93
99 6
84
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
90
7 1
7 3
78
7 2
6
82
89 91 88
4
00
98
95
97
01
2
02
0 0
1
2
3
4
5
85
94
96
87 92
7
8
83
86
93
99 6
84
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
90
7 1
7 3
78
7 2
6
82
89 91 88
4
00
98
95
97
01
2
02
0 0
1
2
3
4
5
85
94
96
87 92
7
8
83
86
93
99 6
84
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
90
7 1
7 3
78
7 2
6
82
89 91 88
4
00
98
95
97
01
2
02
0 0
1
2
3
4
5
85
94
96
87 92
7
8
83
86
93
99 6
84
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
90
7 1
7 3
78
7 2
6
82
89 91 88
4
00
98
95
97
01
2
02
0 0
1
2
3
4
5
85
94
96
87 92
7
8
83
86
93
99 6
84
9
10
11
12
13
Unemployment (%)
Inflation (%)
Phillips loops in the UK?
26
75
24 22 20 18
80
76
16
74
77
14
79
12
81
10 8
90
7 1
7 3
78
7 2
6
82
89 91 88
4
00
98
95
97
01
2
02
0 0
1
2
3
4
5
85
94
96
87 92
7
8
83
86
93
99 6
84
9
10
11
12
13
Unemployment (%)
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