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

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Lectures in Macroeconomics- Charles W. Upton The Phillips Curve

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

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

The Phillips Curve Okun’s Law

The Phillips Curve Okun’s Law

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

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

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

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

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

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

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

The Phillips Curve US Data

The Phillips Curve US Data 1950-1994 1974-1979 1960-1969 1980-1983 1970-1973 1950-1959

The Phillips Curve 1950-1994

The Phillips Curve 1950-1994 Relationship? What Relationship?

The Phillips Curve 1950-1959

The Phillips Curve 1950-1959 This is a “maybe”

The Phillips Curve 1960-1969 This is for real

The Phillips Curve 1970-1973

The Phillips Curve 1974-1979

The Phillips Curve 1980-1983

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

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