J. Bradford DeLong
Whenever unemployment is low, inflation tends to be high. Whenever unemployment is high, inflation tends to be low. This inverse relationship between inflation and unemployment is called the Phillips curve.
The Phillips curve is a relative relationship. Unemployment is considered low or high relative to the so-called natural rate of unemployment. Inflation is considered low or high relative to the expected rate of inflation.
The definitions of the natural rate of unemployment and expected inflation are nearly circular. What is the natural rate? It is the rate of unemployment at which inflation is equal to expected inflation. What is expected inflation? It is the inflation rate that prevails when unemployment is equal to its natural rate.
|Locating the Phillips Curve A Steep Phillips Curve A Shallow Phillips Curve|
of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax
This document: http://www.j-bradford-delong.net/multimedia/PCurve1.html