2010-ECON 202 L17 - ECON202 Viv Hall, SEF VUW L17 Phillips...

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ECON202 Viv Hall, SEF VUW L17 Phillips Curves, Inflation acc the ‘natural’/structural rate of unemployment 1. Some Key Points 2. From WS and PS equations to Phillips Curves 3. Acc eleration of inflation, and the natural rate 4. Expectations , indexation , and inflation acceleration Blanchard 5/e, chapter 8,
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ECON202 Viv Hall, SEF VUW Some Key Points : (1) Bill ( A W H) Phillips’ original curve - contribution of a famous New Zealand economist - relationship between wage inflation and unemployment (in the UK, 1861- 1957) - simple relationship broke down in 1970s Subsequent developments : - role of inflation expectations (i.e the EAPC ) - role of supply shocks - respecifying in terms of acc eleration of inflation - incorporation of natural rate of unemployment (NRU/NUR/NAIRU)
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ECON202 Viv Hall, SEF VUW Some Key Points : (2) The subsequent developments have altered the way in which Phillips curve analysis informs policy decisions: - Samuelson and Solow relied on the existence of a single stable curve , to suggest that policy makers could exploit tradeoffs between inflation and unemployment . - but, expectations-formation processes have changed over time , such that now it is widely agreed that: * in the short-run , a trade-off can exist * in the long-run (i.e., Blanchard’s medium-run), there is no long-run trade-off Deviations of u from u n can affect inflation rates Institutional arrangements, e.g. wage indexation, can accelerate existing positive inflation rates (as far as hyperinflation?)
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ECON202 Viv Hall, SEF VUW From the Efficiency Wage model (WS) & Mark-up pricing (PS) to Phillips Curves : (1) The WS and PS processes provide one useful microfoundation for the Phillips curve
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This note was uploaded on 05/24/2011 for the course ECON 201 taught by Professor Paulclacott during the Fall '10 term at Victoria Wellington.

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2010-ECON 202 L17 - ECON202 Viv Hall, SEF VUW L17 Phillips...

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