The Phillips Curve Now and Then

Robert Gordon

No 3393, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper describes the development of the "triangle" model of inflation, which holds that the rate of inflation depends on inertia, demand. and supply. This model differs from most other versions of the Phillips curve by relating inflation directly to the level and rate of change of detrended real output, and by excluding wages, the unemployment rate, and any mention of "expectations." The model identifies the ultimate source of inflation as nominal GNP growth in excess of potential real output growth and implies that a policy rule that targets excess nominal GNP growth is an essential precondition to avoiding an acceleration of inflation, Any residual instability of inflation then depends on the severity of supply shocks. The textbook and econometric versions of the triangle model were developed simultaneously in the mid-1970s. Since then there have been two empirical validations for the U. S. of the model as estimated a decade ago. First, the "sacrifice" ratio of cumulative output loss relative to the decline in inflation during the business slump of the early 1980s was predicted accurately in advance. Second, the natural unemployment rate implied by the model's estimates predicted in advance the slow acceleration of inflation that occurred in began in 1987, when the unemployment rate fell below 6 percent.

Date: 1990-06
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Published as "Comments: The Phillips Curve Now and Then." From Growth/Productivity/Unemployment, edited by Peter Diamond, pp. 207-217. Cambridge, MA: MIT Press , 1990.

Downloads: (external link)
http://www.nber.org/papers/w3393.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:3393

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w3393

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().