Editing Phillips curve (section)

{{Short description|Economic model relating wages to unemployment}}
{{For|the Phillips curve in supernova astrophysics|Phillips relationship}}
{{More citations needed|date=October 2011}}
{{Macroeconomics sidebar}}
The '''Phillips curve''' is an [[economic model]], named after [[Bill Phillips (economist)|Bill Phillips]], that correlates reduced [[unemployment]] with increasing wages in an economy.<ref>[[A. W. Phillips]], ‘The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom 1861–1957’ (1958) [https://www.jstor.org/stable/2550759 25 Economica 283], referring to unemployment and the "change of money wage rates".</ref>  While Phillips did not directly link employment and [[inflation]], this was a trivial deduction from his statistical findings. [[Paul Samuelson]] and [[Robert Solow]] made the connection explicit and subsequently [[Milton Friedman]]<ref name="FriedmanRole">{{cite journal | author=Friedman, Milton| title=The Role of Monetary Policy | journal=American Economic Review | year=1968 | volume=58 | issue=1 | pages=1–17 | jstor=1831652}}</ref> and [[Edmund Phelps]]<ref name="PhelpsMoneyWage">{{cite journal | author=Phelps, Edmund S. | title=Money-Wage Dynamics and Labor Market Equilibrium | journal=Journal of Political Economy | year=1968 | volume=76 | issue=S4 | pages=678–711 | doi=10.1086/259438| s2cid=154427979 }}</ref><ref name="PhelpsPhillips">{{cite journal | author=Phelps, Edmund S. | title=Phillips Curves, Expectations of Inflation and Optimal Unemployment over Time | journal=Economica | year=1967 | volume=34 | issue=135 | pages=254–281 | jstor=2552025| doi=10.2307/2552025 }}</ref> put the theoretical structure in place.

While there is a short-run tradeoff between unemployment and inflation, it has not been observed in the long run.<ref name=chang>Chang, R. (1997) [https://wwz.unibas.ch/fileadmin/wwz/redaktion/makrooekonomie/intermediate_macro/reader/7/02_ACFC7.pdf "Is Low Unemployment Inflationary?"] {{Webarchive|url=https://web.archive.org/web/20161005104049/https://wwz.unibas.ch/fileadmin/wwz/redaktion/makrooekonomie/intermediate_macro/reader/7/02_ACFC7.pdf |date=2016-10-05 }} ''Federal Reserve Bank of Atlanta Economic Review'' 1Q97:4-13</ref> In 1967 and 1968, Friedman and Phelps asserted that the Phillips curve was only applicable in the short run and that, in the long run, inflationary policies would not decrease unemployment.<ref name="FriedmanRole" /><ref name="PhelpsMoneyWage" /><ref name="PhelpsPhillips" /><ref name="Phelan">{{cite web|url=http://www.thecommentator.com/article/1895/milton_friedman_and_the_rise_and_fall_of_the_phillips_curve|title=Milton Friedman and the rise and fall of the Phillips Curve|access-date=September 29, 2014|publisher=thecommentator.com|last=Phelan|first=John|date=23 October 2012}}</ref> Friedman correctly predicted the [[stagflation]] of the 1970s.<ref name="Krugman">{{cite book |last=Krugman |first=Paul R.|title=Peddling prosperity: economic sense and nonsense in the age of diminished expectations |date=1995 |publisher=[[W. W. Norton]] |isbn=978-0393312928 |location=New York|page=43 }}</ref>

In the 2010s<ref>{{cite news|url=https://www.economist.com/graphic-detail/2017/11/01/the-phillips-curve-may-be-broken-for-good|title=The Phillips curve may be broken for good|year=2017|newspaper=The Economist}}</ref> the slope of the Phillips curve appears to have declined and there has been controversy over the usefulness of the Phillips curve in predicting inflation. A 2022 study found that the slope of the Phillips curve is small and was small even during the early 1980s.<ref>{{Cite journal|last1=Hazell|first1=Jonathon|last2=Herreño|first2=Juan|last3=Nakamura|first3=Emi|last4=Steinsson|first4=Jón|date=2022|title=The Slope of the Phillips Curve: Evidence from U.S. States|url=http://www.nber.org/papers/w28005.pdf|journal=Quarterly Journal of Economics|volume=137 |issue=3 |pages=1299–1344 |doi=10.1093/qje/qjac010 }}</ref> Nonetheless, the Phillips curve is still used by central banks in understanding and forecasting inflation.<ref>{{Cite news|url=https://www.federalreserve.gov/newsevents/speech/yellen20170926a.htm|title=Speech by Chair Yellen on inflation, uncertainty, and monetary policy|work=Board of Governors of the Federal Reserve System|access-date=2017-09-30|language=en}}</ref>