Philips curve
I’ve seen that many people land on my page in search of information for the “Philips curve.” In general, I hate to disappoint people, so I decided to write about the Philips curve a little. Moreover, I studied economics and so the curve was nailed under my skin with a tattoo gun after my graduation.
The Philips curve was devised by an economist named Alban William Phillips from New Zealand. He once wrote a paper about the relationship between the change rate of wages and inflation (a general increase in prices and fall in the purchasing value of money). The basic notion behind his work was that there is an inverse relationship between the two. Plainly put, the Philips curve predicts that when the unemployment rate increases, the inflation rate should decrease and vice-versa. As a result an occurrence of zero inflation rate and zero unemployment is to be negated according to the curve. Unfortunately, the occurence of “stagflation” (inflation + stagnation with accordingly high unemployment rates) ruined the model that was based on empirical observation before 1957.
Behold, the magnificent Philips curve:
For further information go to wikipedia, buy a book from a guy called Mankiw, or ask at your local unemployment agency….
Dear sir,
I am very much satisfied form your answer. I am A MBA student and I am the student of economic and now working in central bank of Nepal.
your faithfully
Kamal Kalathoki
DEAR SIR
I AM ASARE ENOCH BA IN ECONOMICS KNUST,GHANA
SIR IF THERE IS AN INVERSE RELATIONSHIP BETWEEN UNEMPLOYMENT AND INFLATION ACCORDING TO THE PHILIPS CURVE HOW COME DEVELOPING COUNTRIES ARE EXPERIECING THE TWO AT A HIGH RATE?
Hi Asare:
you’re right. The curve has actually some kinks. Mr Philips described his model in a paper from 1958 and he derived his insights from the UK’s wage development in 1861–1957. What you describe is a stagflation (Inflation + Stagnation/Unemployment) and is nowadays, unfortunately, quite common. In those times, however, it wasn’t, and the correlation was thought to be explained that simple. Many economists argue that Philips attempt was too “short-term” and today the curve is often used to clarify the difference between short- and long-term studies with different results.
Sometimes the things are NOT exactly like they appear
I hope this helped…
i love u sir for the answer
Sir
Thank you for the answer please is there any way out for the developing countries to get out from this stag-flation
sir,what are the diffferences between short-term and long-term Philips curves?
I understand that you want to know what the influence of a short-term and long-term look on the relationship between unemplyment and wage change is? Well, as in every economics stydy containing math/statistics you will find that a correlation between two variables, i.e. unemployment and wage, can vary over time. A correlation analysis just reveals if there is a linear relationship (as in: I can draw a line explaining it). Take the correlation between a cow’s weight and fodder. I can draw you a fine diagram from a short-term study (say, under 6 months) revealing that the more food I give it, the fatter it gets. But what if I study that in a long-term way meaning I increase the food supply over, say 2 years. The result may be the cows death due to obesity, that would indicate a rather different outcome don’t you think? It’s the same cow and the same food but the time-frame is different and that alters the results. I hope that helped.