Monday, May 12, 2014

What Ever Happened to the Phillips Curve? An Interpretation of Fifty Years of Inflation-Unemployment Data

[Exerpt:] . . . The Phillips curve was at the height of its popularity when John F. Kennedy became president in 1961. Kennedy had been elected on a promise to “get the country moving again.” He and his successor, Lyndon Johnson, set out to do so with the help of some of the best and brightest economists of the day. We can catch the spirit of that self-confident decade in this passage from the 1966 Economic Report of the President, written by a Council of Economic Advisers consisting of Arthur Okun, Gardner Ackley, and Otto Eckstein:
We strive to avoid recurrent recessions, to keep unemployment far below rates of the past decade, to maintain price stability at full employment . . . and indeed to make full prosperity the normal state of the American economy. It is a tribute to our success . . .  that we now have not only the economic understanding but also the will and determination to use economic policy as an effective tool for progress.
The result of their efforts at economic stimulus was something that, at least at first, looked very much like the classic Phillips curve.The problem is, the tidy trade-off didn't last. After the first few years, the pattern turned messy, as shown in the chart  >>>Read the full post

Follow this link to download a classroom-ready slideshow with an explanation of the Phillips curve model and an analysis of fifty years of US inflation and unemployment data

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