TAILIEUCHUNG - Phillips curve

The Phillips curve is a historical inverse relation and tradeoff between the rate of unemployment and the rate of inflation in an economy. Stated simply, the lower the unemployment in an economy, the higher the rate of change in wages paid to labour in that economy. | Phillips curve This article has been tagged since July 2006. 3 Phillips curve The Phillips curve is a historical inverse relation and tradeoff between the rate of unemployment and the rate of inflation in an economy. Stated simply the lower the unemployment in an economy the higher the rate of change in wages paid to labour in that economy. The New Zealand-born economist . Phillips in his 1958 paper The relationship between unemployment and the rate of change of money wages in the UK 1861-1957 published in Economica observed an inverse relationship between money wage changes and unemployment in the British economy over the period examined. Similar patterns were found in other countries and in 1960 Paul Samuelson and Robert Solow took Phillips work and made explicit the link between inflation and unemployment when inflation was high unemployment was low and vice-versa. It is little known that the American economist Irving Fisher pointed to this kind of Phillips curve relationship back in the 1920s. On the other hand Phillips original curve described the behavior of money wages. So some believe that the PC should be called the Fisher curve. In the years following his 1958 paper many economists in the advanced industrial countries believed that Phillips results showed that there was a permanently stable relationship between inflation and unemployment. One implication of this for government policy was that governments could control unemployment and inflation within a Keynesian policy. They could tolerate a reasonably high rate of inflation as this would lead to lower unemployment - there would be a trade-off between inflation and unemployment. For example monetary policy and or fiscal policy . deficit spending could be used to stimulate the economy raising gross domestic product and lowering the unemployment rate. Moving along the Phillips curve this would lead to a higher inflation rate the cost of enjoying lower unemployment rates. To a large extent a leftward

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