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the shortrun Phillips curve becomes vertical and identical to
the longrun Phillips curve. Lecture 16 – Phillips Curve & Aggregate Supply: R. J. Hawkins Econ 100B: Macroeconomics 18/ 36 The Phillips Curve
The modern Phillips curve with adaptive expectations The extension to include inﬂationary expectations:
In the simplest version, we assume that inﬂation expectations are
adaptive (or backwardlooking):
e
⇡t = ⇡t 1 and write the shortrun Phillips curve
⇡ = ⇡e ! (U UN ) + ⇢ as
⇡t = ⇡t 1 ! ( Ut Lecture 16 – Phillips Curve & Aggregate Supply: R. J. Hawkins UN ) + ⇢t Econ 100B: Macroeconomics 19/ 36 The Phillips Curve
The modern Phillips curve with adaptive expectations The extension to include inﬂationary expectations:
⇡t = ⇡t 1 ! ( Ut UN ) + ⇢t Advantages:
A very convenient analytical form.
Provides reasons for sticky prices.
1 Slow changes in inﬂation expectations. 2 Some wage & price contracts may depend on past inﬂation. Disadvantage:
A very simple (mechanistic?) view of how inﬂation
expectations are formed. Lecture 16 – Phillips Curve & Aggregate Supply: R. J. Hawkins Econ 100B: Macroeconomics 20/ 36 The Phillips Curve
The modern Phillips curve with adaptive expectations The accelerationist Phillips curve:
Our Phillips curve
⇡t = ⇡t 1 ! ( Ut UN ) + ⇢t written as
⇡t = ! ( Ut UN ) + ⇢t is referred to as the accelerationist Phillips curve.
Inﬂation is a rate, so the timechange of inﬂation is an
acceleration.
If Ut < UN then ⇡t > 0 if ⇢t = 0. If Ut = UN then ⇡t = 0 if ⇢t = 0. Lecture 16 – Phillips Curve & Aggregate Supply: R. J. Hawkins Econ 100B: Macroeconomics 21/ 36 The Phillips Curve The Phillips curve and aggregate supply:
The Phillips curve is the basis for deriving the aggregate
supply curve.
Because there are both longrun and shortrun Phillips curves,
there are both longrun and shortrun aggregate supply
curves. Lecture 16 – Phillips Curve & Aggregate Supply: R. J. Hawkins Econ 100B: Macroeconomics 22/ 36 The Aggregate Supply Curve Deﬁnition:
The aggregate supply curve represents the positive relationship
between:
the quantity of output that businesses are willing to produce,
and
the inﬂation rate. Lecture 16 – Phillips Curve & Aggregate Supply: R. J. Hawkins Econ 100B: Macroeconomics 23/ 36 The Aggreg...
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 Phillips Curve

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