Editing Phillips curve (section)

==Theoretical questions==
To [[Milton Friedman]] there is a short-term correlation between inflation shocks and employment. When an inflationary surprise occurs, workers are fooled into accepting lower pay because they do not see the fall in real wages right away. Firms hire them because they see the inflation as allowing higher profits for given nominal wages. This is a movement along the Phillips curve as with change '''A'''. Eventually, workers discover that real wages have fallen, so they push for higher money wages. This causes the Phillips curve to shift upward and to the right, as with '''B'''. Some research underlines that some implicit and serious assumptions are actually in the background of the Friedmanian Phillips curve. This information asymmetry and a special pattern of flexibility of prices and wages are both necessary if one wants to maintain the mechanism told by Friedman. However, as it is argued, these presumptions remain completely unrevealed and theoretically ungrounded by Friedman.<ref>{{cite book |last=Galbács |first=Peter |title=The Theory of New Classical Macroeconomics. A Positive Critique |location=Heidelberg/New York/Dordrecht/London |publisher=Springer |year=2015 |isbn= 978-3-319-17578-2|doi=10.1007/978-3-319-17578-2|series=Contributions to Economics }}</ref>

===Gordon's triangle model===
[[Robert J. Gordon]] of [[Northwestern University]] has analyzed the Phillips curve to produce what he calls the [[Inflation#Keynesian view|triangle model]], in which the actual inflation rate is determined by the sum of

#[[demand pull inflation|demand pull or short-term Phillips curve inflation]],
#[[cost push inflation|cost push or supply shocks]], and
#[[built-in inflation]].

The last reflects inflationary expectations and the [[price/wage spiral]]. Supply shocks and changes in built-in inflation are the main factors shifting the short-run Phillips curve and changing the trade-off. In this theory, it is not only inflationary expectations that can cause stagflation. For example, [[1970s energy crisis|the steep climb of oil prices during the 1970s]] could have this result.

Changes in built-in inflation follow the [[adaptive expectations|partial-adjustment]] logic behind most theories of the NAIRU:

# Low unemployment encourages high inflation, as with the simple Phillips curve. But if unemployment stays low and inflation stays high ''for a long time'', as in the late 1960s in the U.S., both inflationary expectations and the price/wage spiral accelerate. This ''shifts'' the short-run Phillips curve upward and rightward, so that more inflation is seen at any given unemployment rate. (This is with shift '''B''' in the diagram.)
# High unemployment encourages low inflation, again as with a simple Phillips curve. But if unemployment stays high and inflation stays low for a long time, as in the early 1980s in the U.S., both inflationary expectations and the price/wage spiral slow. This ''shifts'' the short-run Phillips curve downward and leftward, so that less inflation is seen at each unemployment rate.

In between these two lies the NAIRU, where the Phillips curve does not have any inherent tendency to shift, so that the inflation rate is stable.  However, there seems to be a range in the middle between "high" and "low" where built-in inflation stays stable. The ends of this "non-accelerating inflation range of unemployment rates" change over time.