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The Phillips curve is an economic model, named after Bill Phillips, that correlates reduced unemployment with increasing wages in an economy. [1] While Phillips did not directly link employment and inflation, this was a trivial deduction from his statistical findings.
Phillips was born at Te Rehunga near Dannevirke, New Zealand, to Harold Housego Phillips, a dairy farmer, and his wife, Edith Webber, a schoolteacher and postmistress. [1] A mechanical aptitude began to emerge at an early age: at fifteen, Bill learned how to fix a motor vehicle engine, how to wire a shed for electrical lighting, build radios, and create a crude form of cinematography.
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.
In macroeconomics, the triangle model employed by new Keynesian economics is a model of inflation derived from the Phillips Curve and given its name by Robert J. Gordon.The model views inflation as having three root causes: built-in inflation, demand-pull inflation, and cost-push inflation. [1]
One important application of the critique (independent of proposed microfoundations) is its implication that the historical negative correlation between inflation and unemployment, known as the Phillips curve, could break down if the monetary authorities attempted to exploit it.
The book further popularized his "expectations-augmented Phillips curve" and introduced the concept of hysteresis with regard to unemployment (prolonged unemployment is partially irreversible as workers lose skill and become demoralized).
This exhibits a Phillips curve relationship, as inflation is positively related with output (i.e. inflation is negatively related with unemployment). However, and this is the point, the existence of a short-run Phillips curve does not make the central bank capable of exploiting this relationship in a systematic way.
William Phillips, an economist and creator of the Phillips curve, invented the MONIAC, a hydraulic computer which simulated the British economy. [3] [4] [5] This is the inspiration for the term. Even earlier, in 1891, Irving Fisher built a hydraulic machine for calculating equilibrium prices. [6]