phillipscurve

phillipscurve - Phillips Curve Phillips Macroeconomics...

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Phillips Curve Phillips Curve Macroeconomics Cunningham
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2 Original Phillips Curve Original Phillips Curve A. W. Phillips (1958), “The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957”, Economica . Wage inflation vs. Unemployment New Zealander at London School of Economics Missing Equation of Keynesian economics?
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3 5½ % = zero inflation
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4 5½ %
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5 There exists a stable relationship between the variables. The relationship has not substantially changed for over 100 years. Negative, nonlinear correlation. Wages remain stable/stationary ( =0) when unemployment is 5½%. Phillips’ Conclusions Phillips’ Conclusions w dw
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6 Conclusions, Continued Conclusions, Continued From the dispersion of the data points, Phillips concluded that there was a countercyclical “loop”: Money wages rise faster as du/dt decreases, Money wages fall slower as du/dt increases Implies an inflationary bias, and is consistent with sticky wage theory. u slower faster w dw
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7 Problems with Phillips’ Study Problems with Phillips’ Study Empirical method suspect. Is this an empirical result in search of a theory? To tie to theory, need a way to relate this to real wages in order to connect this to labor market conditions. R.G. Lipsey (1960) attempts to address these points in “The Relationship Between Unemployment and the Rate of Change of Money Wage Rates in the UK, 1862-1957: A Further Analysis”.
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8 Lipsey’s Phillips Curve Lipsey’s Phillips Curve Derives the Phillips curve from supply-demand analysis of the labor market. N
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phillipscurve - Phillips Curve Phillips Macroeconomics...

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