Inflation and Unemployment:
The Phillips Curve
Whether the Phillips curve exists or not, the data on inflation and unemployment tells important stories about business cycles.
The current graphs are set for a maximum of 10% unemployment
and a maximum of 20% inflation. Some countries have exceeded
these limits at times.
This version of the Phillips Curve material is new as of 7/10/08. The old version of the Phillips Curve presentation is available here.
The original Phillips curve paper covered business cycles from 1861 to 1957. Given that this period predates most of the debate between the monetarists and Keynesians as well as the modern era where central bank policy has GDP stabilization as a goal, it is not entirely surprising that fitting the post-1957 data has proven more complicated. In fact, the Phillips curve is one of those cases where belief in an economic idea is so appealing that it survives despite contradictory factual evidence. In some views, when the data does not fit a single Phillips curve, that is simply evidence that the curve has shifted. After looking at the data, you can form your own opinion.
Phillips, A. W. H. "The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957." Economica NS 25, no. 2 (1958): 283-99.