Intermediate Macroeconomics - Chapter 8: Phillips Curve

A collection of key terms and definitions related to the Phillips Curve from Intermediate Macroeconomics, Chapter 8.

Phillips Curve

Represents the relationship between inflation and unemployment, originally showing a negative correlation.

WS-PS model

A model used to derive the Phillips Curve, involving wage-setting and price-setting equations.

Alpha (α) in the Phillips Curve

Measures how sensitive wages are to changes in the unemployment rate, wage stickiness

Modern Phillips Curve equation

π_t=π^e+(m+x)-åu_t

Accelerationist Phillips Curve

π_e=1-π^t-1

Natural rate of unemployment (un)

The rate at which the Phillips Curve becomes vertical, indicating no trade-off between inflation and unemployment.

Re-anchoring of inflation expectations

When inflation expectations stabilize around a central bank target due to policy credibility.

Wage indexation

The automatic adjustment of wages for inflation, affecting inflation sensitivity.

relationship between inflation and unemployment

negative

relationship between inflation and alpha

negative

relationship between inflation and expected inflation

positive

relationship between inflation and m

positive

relationship between inflation and z

positive

what is Θ

the weight of π_t-1 on π^e, the more concern the higher Θ

whats the range of theta

0<Θ<1

Phillips Curve in the PC

π_t-π^e=-å(u_t-u_n)