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Lectures in Macroeconomics- Charles W. Upton The Phillips Curve.

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Presentation on theme: "Lectures in Macroeconomics- Charles W. Upton The Phillips Curve."— Presentation transcript:

1 Lectures in Macroeconomics- Charles W. Upton The Phillips Curve

2 The Curve Inflation Rate(  ) Unemployment(U) 0

3 The Phillips Curve The Curve Inflation Rate(  ) Unemployment(U) 0 Developed by A. W. Phillips using UK data from the 19 th Century.

4 The Phillips Curve Okun’s Law

5 The Phillips Curve Okun’s Law

6 The Phillips Curve The Curve Inflation Rate(  ) Unemployment(U) 0 Okun’s Law: 1% Unemployment costs  $200 Billion of GDP.

7 The Phillips Curve What does it cost us?? r N =5% $500B D

8 The Phillips Curve For the US? r N =5% $500B D r N =6% $450B

9 The Phillips Curve For the US? r N =5% $500B D r N =6% $450B

10 The Phillips Curve Costs and Benefits Inflation Rate(  ) Unemployment(U) 0 Extra 1% of inflation costs $250 million

11 The Phillips Curve Costs and Benefits Inflation Rate(  ) Unemployment(U) 0 Extra 1% of inflation costs $250 million But the reduction in U can be enormously beneficial

12 The Phillips Curve The Choice Inflation Rate(  ) Unemployment(U) 0

13 The Phillips Curve US Data

14 The Phillips Curve US Data

15 The Phillips Curve

16 The Phillips Curve Relationship? What Relationship?

17 The Phillips Curve

18 The Phillips Curve This is a “maybe”

19 The Phillips Curve This is for real

20 The Phillips Curve

21 The Phillips Curve

22 The Phillips Curve

23 The Phillips Curve Conclusion No Long Run Phillips Curve Apparently a Short Run Phillips Curve, when inflation rate differs from expected rate.

24 The Phillips Curve Our Task How do we Explain these findings? And how do we incorporate them into the model?

25 The Phillips Curve End ©2004 Charles W. Upton. All rights reserved


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