The Phillips Curve: A Case Study Of Theory And Practice

Abstract

This paper develops a detailed case study of the Phillips Curve as it has evolved since Phillips classic work of 1958. An explicit narrative in the paper involves the evolution of the argument using economics and systems thinking, to develop underlying data generating models. These are shown to underpin the inverse relationship between inflation and unemployment in economics. The paper considers the political exigencies relating to the Great inflation of the 1970s and the Great Recession post 2008 in terms of interpretations of the Philips curve. The paper hypothesises that economic ideas have meaningful significance within the context of historical eras with concomitant political imperatives whence such notions become somnolent once crises have abated. This This historical narrative is implicit in the latest research reflections on Philips curves. A particularly useful finding is the relevance of systems thinking and systems dynamics to the interpretation of issues relating to aggregation problems in macroeconomics involving inflation and unemployment causal relationships. The paper concludes that seemingly moribund the Philips curve is alive may have been hibernating. Identifying the Phillips curve requires a wide range of variability of non-aggregative data streams. This allows the negative slope of the curve to be revealed, else the Philips curve slope is pushed towards the vertical plane. Endogenous central banking and inflation targeting intensifies this effect which is evident from a systems thinking /dynamics perspective.