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The Phillips curve is an economic model, named after Bill Phillips, ... High unemployment encourages low inflation, again as with a simple Phillips curve. But if ...
The New Keynesian Phillips curve was originally derived by Roberts in 1995, [48] and has since been used in most state-of-the-art New Keynesian DSGE models. [49] The new Keynesian Phillips curve says that this period's inflation depends on current output and the expectations of next period's inflation.
Milton Friedman argued that a natural rate of inflation followed from the Phillips curve.This showed wages tend to rise when unemployment is low. Friedman argued that inflation was the same as wage rises, and built his argument upon a widely believed idea, that a stable negative relation between inflation and unemployment existed. [11]
The Lucas islands model is an economic model of the link between money supply and price and output changes in a simplified economy using rational expectations.It delivered a new classical explanation of the Phillips curve relationship between unemployment and inflation.
Demand-pull inflation occurs when aggregate demand in an economy is more than aggregate supply.It involves inflation rising as real gross domestic product rises and unemployment falls, as the economy moves along the Phillips curve.
Related ideas are expressed as Campbell's law and Goodhart's law—but in a 1976 paper, Lucas drove to the point that this simple notion invalidated policy advice based on conclusions drawn from large-scale macroeconometric models. Because the parameters of those models were not structural, i.e. not policy-invariant, they would necessarily ...
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Friedman also challenged the original simple Phillips curve relationship between inflation and unemployment. Friedman and Edmund Phelps (who was not a monetarist) proposed an "augmented" version of the Phillips curve that excluded the possibility of a stable, long-run tradeoff between inflation and unemployment. [20]