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PhillipsCurve - The Phillips Curve NAIRU etc The The...

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The Phillips Curve, NAIRU, etc. The Phillips Curve, NAIRU, etc.
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The Natural Rate of The Natural Rate of Unemployment Unemployment and the Phillips Curve and the Phillips Curve circle5 The Phillips curve, based on the data above, shows a negative relation between inflation and unemployment. During the period 1900 to 1960 in the United States, a low unemployment rate was typically associated with a high inflation rate, and a high unemployment rate was typically associated with a low or negative inflation rate. 2
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THE PHILLIPS CURVE THE PHILLIPS CURVE From CEE, http://www.econlib.org/library/Enc/PhillipsCurve.html Source: Bureau of Labor Statistics. Note: Inflation based on the Consumer Price Index. 3
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Phillips curve Phillips curve ? ? US (1993 – 2009) UK (1993 – 2009) 4 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Unmpl GBR 10.39 9.65 8.70 8.15 7.12 6.30 6.02 5.53 5.10 5.19 5.04 4.77 4.79 5.41 5.42 5.49 5.43 Infl GBR 2.50 2.07 2.63 2.44 1.82 1.56 1.32 0.87 1.18 1.27 1.36 1.34 2.04 2.30 2.35 2.50 2.10 Unmpl USA 6.91 6.10 5.59 5.41 4.94 4.50 4.22 3.97 4.74 5.78 5.99 5.54 5.07 4.61 4.64 5.38 6.30 Infl USA 2.97 2.60 2.81 2.94 2.34 1.55 2.19 3.37 2.82 1.60 2.30 2.67 3.38 3.23 2.86 3.02 1.99
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Inflation, Inflation, P P e e and and Unemployment Unemployment 5 This AS relation can be rewritten to establish a relation between inflation, expected inflation, and the unemployment rate. First, the function F , assumes the form: P P F u z e = + ( ) ( , ) 1 μ F u z z ( , ) = - + 1 α u P P e = + - ( )( ) 1 1 μ α u+ z Then, replace this function in the one above:
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Inflation, Inflation, P P e e and and Unemployment Unemployment From derive An increase in the expected inflation, π e , leads to an increase in inflation , π . Given expected inflation π e , an increase in the markup, μ , or an increase in the factors that affect wage determination, z, lead to an increase in inflation π .
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