IDEAS home Printed from https://ideas.repec.org/a/awu/journl/v14y2020i1p81-115.html
   My bibliography  Save this article

Two routes back to the old Phillips curve: the amended mainstream model and the conflict augmented alternative

Author

Listed:
  • Ricardo Summa

    (Federal University of Rio de Janeiro - UFRJ, Brazil)

  • Julia Braga

    (Fluminense Federal University - UFF, Brazil)

Abstract

Blanchard recently stated that the old Phillips curve is alive and well. In this paper we argue that there are two routes to this old Phillips curve. The mainstream route assumes demand-pull inflation and full incorporation of inflation expectations into money wages, and amendments to avoid its accelerationist behavior. The alternative nonneoclassical conflict-augmented Phillips curve assumes no labour scarcity, cost-push inflation and that expectations are not always fully passed on to nominal wages. Additionally, this alternative is also more general than the Heterodox-NAIRU models, as it is compatible both with stable and accelerating inflation, depending on the strength of the workers’ bargaining power.

Suggested Citation

  • Ricardo Summa & Julia Braga, 2020. "Two routes back to the old Phillips curve: the amended mainstream model and the conflict augmented alternative," Bulletin of Political Economy, Bulletin of Political Economy, vol. 14(1), pages 81-115, June.
    • Handle: RePEc:awu:journl:v:14:y:2020:i:1:p:81-115
    as

    Download full text from publisher

    File URL: https://serialsjournals.com/abstract/42980_4-summa.pdf
    Download Restriction: no
    File URL: https://www.bulletinofpe.com/ricardo-summa-julia-braga-20201
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Thomas M. Humphrey, 1985. "The evolution and policy implications of Phillips curve analysis," Economic Review, Federal Reserve Bank of Richmond, vol. 71(Mar), pages 3-22.
    2. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90, National Bureau of Economic Research, Inc.
    3. Olivier Blanchard, 2018. "Should We Reject the Natural Rate Hypothesis?," Journal of Economic Perspectives, American Economic Association, vol. 32(1), pages 97-120, Winter.
    4. Wendy Carlin & David Soskice, 2018. "Stagnant productivity and low unemployment: stuck in a Keynesian equilibrium," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 34(1-2), pages 169-194.
    5. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
    6. Fontanari, Claudia & Palumbo, Antonella & Salvatori, Chiara, 2020. "Potential Output in Theory and Practice: A Revision and Update of Okun's Original Method," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 247-266.
    7. Laurence Ball & Robert Moffitt, 2001. "Productivity Growth and the Phillips Curve," NBER Working Papers 8421, National Bureau of Economic Research, Inc.
    8. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
    9. George A. Akerlof & William T. Dickens & George L. Perry, 2000. "Near-Rational Wage and Price Setting and the Long-Run Phillips Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 1-60.
    10. Alan G. Isaac, 1993. "Is there a Natural Rate?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 15(4), pages 453-470, July.
    11. A. W. Phillips, 1958. "The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957," Economica, London School of Economics and Political Science, vol. 25(100), pages 283-299, November.
    12. Robert Solow, 2018. "A theory is a sometime thing," Review of Keynesian Economics, Edward Elgar Publishing, vol. 6(4), pages 421-424, October.
    13. Thomas Palley, 2018. "Recovering Keynesian Phillips curve theory," FMM Working Paper 26-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    14. Mankiw, N Gregory, 2001. "The Inexorable and Mysterious Tradeoff between Inflation and Unemployment," Economic Journal, Royal Economic Society, vol. 111(471), pages 45-61, May.
    15. Rosenberg, Sam & Weisskopf, Thomas E, 1981. "A Conflict Theory Approach to Inflation in the Postwar U.S. Economy," American Economic Review, American Economic Association, vol. 71(2), pages 42-47, May.
    16. Palley, Thomas, 2012. "The economics of the Phillips curve: Formation of inflation expectations versus incorporation of inflation expectations," Structural Change and Economic Dynamics, Elsevier, vol. 23(3), pages 221-230.
    17. Ernesto Screpanti, 2000. "Wages, Employment, and Militancy: A Simple Model and Some Empirical Tests," Review of Radical Political Economics, Union for Radical Political Economics, vol. 32(2), pages 171-196, June.
    18. Gordon, Robert J, 1989. "Hysteresis in History: Was There Ever a Phillips Curve?," American Economic Review, American Economic Association, vol. 79(2), pages 220-225, May.
    19. Blanchard, Olivier J. & Summers, Lawrence H., 1987. "Hysteresis in unemployment," European Economic Review, Elsevier, vol. 31(1-2), pages 288-295.
    20. Mark Setterfield & Ted Lovejoy, 2006. "Aspirations, bargaining power, and macroeconomic performance," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 29(1), pages 117-148.
    21. Olivier Blanchard, 2009. "The State of Macro," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 209-228, May.
    22. Peter Hooper & Frederic S. Mishkin & Amir Sufi, 2019. "Prospects for Inflation in a High Pressure Economy: Is the Phillips Curve Dead or is It Just Hibernating?," NBER Working Papers 25792, National Bureau of Economic Research, Inc.
    23. Blanchard, Oliver & Cerutti, Eugenio & SUmmers, Lawrence, 2015. "Inflation and Activity - Two Explorations and Their Monetary Policy Implications," Working Paper Series 15-070, Harvard University, John F. Kennedy School of Government.
    24. Robert J. Gordon, 2018. "Friedman and Phelps on the Phillips curve viewed from a half century's perspective," Review of Keynesian Economics, Edward Elgar Publishing, vol. 6(4), pages 425-436, October.
    25. John B. Taylor, 2000. "Teaching Modern Macroeconomics at the Principles Level," American Economic Review, American Economic Association, vol. 90(2), pages 90-94, May.
    26. Louis-Philippe Rochon & Sergio Rossi, 2018. "The relationship between inflation and unemployment: a critique of Friedman and Phelps," Review of Keynesian Economics, Edward Elgar Publishing, vol. 6(4), pages 533-544, October.
    27. Frederic S. Mishkin, 2007. "Inflation Dynamics," International Finance, Wiley Blackwell, vol. 10(3), pages 317-334, December.
    28. Carlin, Wendy & Soskice, David, 2014. "Macroeconomics: Institutions, Instability, and the Financial System," OUP Catalogue, Oxford University Press, number 9780199655793.
    29. Olivier Blanchard, 2016. "The Phillips Curve: Back to the '60s?," American Economic Review, American Economic Association, vol. 106(5), pages 31-34, May.
    30. Douglas O. Staiger & James H. Stock & Mark W. Watson, 1997. "How Precise Are Estimates of the Natural Rate of Unemployment?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 195-246, National Bureau of Economic Research, Inc.
    31. Nathan Perry & Nathaniel Cline, 2016. "What caused the great inflation moderation in the US? A post-Keynesian view," Review of Keynesian Economics, Edward Elgar Publishing, vol. 4(4), pages 475-502, October.
    32. Kaldor, Nicholas [Lord], 1976. "Inflation and Recession in the World Economy," Economic Journal, Royal Economic Society, vol. 86(344), pages 703-714, December.
    33. Laurence M. Ball, 2009. "Hysteresis in Unemployment: Old and New Evidence," NBER Working Papers 14818, National Bureau of Economic Research, Inc.
    34. Antonella Stirati, 2001. "Inflation, Unemployment and Hysteresis: An alternative view," Review of Political Economy, Taylor & Francis Journals, vol. 13(4), pages 427-451.
    35. Robert J. Gordon, 2011. "The History of the Phillips Curve: Consensus and Bifurcation," Economica, London School of Economics and Political Science, vol. 78(309), pages 10-50, January.
    36. Antonella Stirati & Walter Paternesi Meloni, 2018. "A short story of the Phillips curve: from Phillips to Friedman… and back?," Review of Keynesian Economics, Edward Elgar Publishing, vol. 6(4), pages 493-516, October.
    37. George L. Perry, 1970. "Changing Labor Markets and Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(3), pages 411-448.
    38. James H. Stock & Mark W. Watson, 2019. "Slack and Cyclically Sensitive Inflation," NBER Working Papers 25987, National Bureau of Economic Research, Inc.
    39. Antonella Palumbo, 2015. "Studying Growth in the Modern Classical Approach: Theoretical and Empirical Implications for the Analysis of Potential Output," Review of Political Economy, Taylor & Francis Journals, vol. 27(3), pages 282-307, July.
    40. Robert J. Gordon, 2018. "Friedman and Phelps on the Phillips Curve Viewed from a Half Century's Perspective," NBER Working Papers 24891, National Bureau of Economic Research, Inc.
    41. Olivier Blanchard, 2018. "On the future of macroeconomic models," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 34(1-2), pages 43-54.
    42. Antonella Palumbo, 2013. "Potential Output and Demand-Led Growth," Palgrave Macmillan Books, in: Enrico Sergio Levrero & Antonella Palumbo & Antonella Stirati (ed.), Sraffa and the Reconstruction of Economic Theory: Volume Two, chapter 4, pages 92-119, Palgrave Macmillan.
    43. Enrico Sergio Levrero, 2013. "Marx on Absolute and Relative Wages and the Modern Theory of Distribution," Review of Political Economy, Taylor & Francis Journals, vol. 25(1), pages 91-116, January.
    44. Palley, Thomas I, 1994. " Escalators and Elevators: A Phillips Curve for Keynesians," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(1), pages 111-116.
    45. Thomas Palley, 2018. "Recovering Keynesian Phillips curve theory: hysteresis of ideas and the natural rate of unemployment," Review of Keynesian Economics, Edward Elgar Publishing, vol. 6(4), pages 473-492, October.
    46. Rothschild, Kurt W, 1971. "The Phillips Curve and All That," Scottish Journal of Political Economy, Scottish Economic Society, vol. 18(3), pages 245-280, November.
    47. Mario Cassetti, 2003. "Bargaining power, effective demand and technical progress: a Kaleckian model of growth," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 27(3), pages 449-464, May.
    48. Alan G. Isaac, 1991. "Economic Stabilization and Money Supply Endogeneity in a Conflicting Claims Environment," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 14(1), pages 93-110, September.
    49. Engelbert Stockhammer, 2008. "Is The Nairu Theory A Monetarist, New Keynesian, Post Keynesian Or A Marxist Theory?," Metroeconomica, Wiley Blackwell, vol. 59(3), pages 479-510, July.
    50. Michal Kalecki, 1971. "Class Struggle And The Distribution Of National Income," Kyklos, Wiley Blackwell, vol. 24(1), pages 1-9, February.
    51. Alogoskoufis, George S & Smith, Ron, 1991. "The Phillips Curve, the Persistence of Inflation, and the Lucas Critique: Evidence from Exchange-Rate Regimes," American Economic Review, American Economic Association, vol. 81(5), pages 1254-1275, December.
    52. Alan G. Isaac, 2009. "Monetary And Fiscal Interactions: Short‐Run And Long‐Run Implications," Metroeconomica, Wiley Blackwell, vol. 60(1), pages 197-223, February.
    53. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
    54. Robert J. Gordon, 1990. "The Phillips Curve Now and Then," NBER Working Papers 3393, National Bureau of Economic Research, Inc.
    55. Robert J. Gordon, 2013. "The Phillips Curve is Alive and Well: Inflation and the NAIRU During the Slow Recovery," NBER Working Papers 19390, National Bureau of Economic Research, Inc.
    56. Paul Krugman, 2018. "Good enough for government work? Macroeconomics since the crisis," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 34(1-2), pages 156-168.
    57. Mark Setterfield, 2005. "Worker Insecurity and U.S. Macroeconomic Performance During the 1990s," Review of Radical Political Economics, Union for Radical Political Economics, vol. 37(2), pages 155-177, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Davide Romaniello, 2022. "Unemployment gap, isteresi e disoccupazione di lunga durata: quale ruolo nella comprensione dell'inflazione? (Unemployment gap, hysteresis and long-term unemployment: which role in explaining inflatio," Moneta e Credito, Economia civile, vol. 75(299), pages 267-283.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ricardo Summa & Julia Braga, 2020. "The (conflict-augmented) Phillips Curve is alive and well," Working Papers 0055, ASTRIL - Associazione Studi e Ricerche Interdisciplinari sul Lavoro.
    2. Paternesi Meloni, Walter & Romaniello, Davide & Stirati, Antonella, 2022. "Inflation and the NAIRU: assessing the role of long-term unemployment as a cause of hysteresis," Economic Modelling, Elsevier, vol. 113(C).
    3. Fontanari, Claudia & Palumbo, Antonella & Salvatori, Chiara, 2020. "Potential Output in Theory and Practice: A Revision and Update of Okun's Original Method," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 247-266.
    4. Guilherme Spinato Morlin, 2021. "Inflation and Macroeconomics in the US during the Golden Age," HISTORY OF ECONOMIC THOUGHT AND POLICY, FrancoAngeli Editore, vol. 10(1), pages 107-130.
    5. Aguiar-Conraria, Luís & Martins, Manuel M.F. & Soares, Maria Joana, 2023. "The Phillips curve at 65: Time for time and frequency," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).
    6. Marika Karanassou & Hector Sala & Dennis J. Snower, 2010. "Phillips Curves And Unemployment Dynamics: A Critique And A Holistic Perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 1-51, February.
    7. Robert J. Gordon, 2011. "The History of the Phillips Curve: Consensus and Bifurcation," Economica, London School of Economics and Political Science, vol. 78(309), pages 10-50, January.
    8. Philipp Heimberger, 2021. "Do higher public debt levels reduce economic growth?," FMM Working Paper 74-2021, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    9. Luís Aguiar-Conraria & Manuel M. F. Martins & Maria Joana Soares, 2019. "The Phillips Curve at 60: time for time and frequency," NIPE Working Papers 04/2019, NIPE - Universidade do Minho.
    10. Mark Setterfield & Robert A. Blecker, 2022. "Structural change in the US Phillips curve, 1948-2021: the role of power and institutions," Working Papers 2201, New School for Social Research, Department of Economics.
    11. Davide Romaniello, 2022. "Unemployment gap, isteresi e disoccupazione di lunga durata: quale ruolo nella comprensione dell'inflazione? (Unemployment gap, hysteresis and long-term unemployment: which role in explaining inflatio," Moneta e Credito, Economia civile, vol. 75(299), pages 267-283.
    12. Aurélien Goutsmedt & Goulven Rubin, 2018. "Robert J. Gordon and the introduction of the natural rate hypothesis in the Keynesian framework," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01821825, HAL.
    13. Laurence Ball & N. Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 115-136, Fall.
    14. Bozani, Vasiliki & Drydakis, Nick, 2011. "Studying the NAIRU and its Implications," IZA Discussion Papers 6079, Institute of Labor Economics (IZA).
    15. Michael McLeay & Silvana Tenreyro, 2020. "Optimal Inflation and the Identification of the Phillips Curve," NBER Macroeconomics Annual, University of Chicago Press, vol. 34(1), pages 199-255.
    16. Nishi, Hiroshi & Stockhammer, Engelbert, 2020. "Distribution shocks in a Kaleckian model with hysteresis and monetary policy," Economic Modelling, Elsevier, vol. 90(C), pages 465-479.
    17. Aurélien Gaimon & Vincent Lapegue & Paola Veroni & Noé N'Semi & Frédéric Reynés & Maël Theulière, 2007. "Does the interaction between shocks and institutions solve the OECD unemployment puzzle ? A theoretical and empirical appraisal," Working Papers hal-03602950, HAL.
    18. Fabian Eser & Peter Karadi & Philip R. Lane & Laura Moretti & Chiara Osbat, 2020. "The Phillips Curve at the ECB," Manchester School, University of Manchester, vol. 88(S1), pages 50-85, September.
    19. Bańbura, Marta & Bobeica, Elena, 2023. "Does the Phillips curve help to forecast euro area inflation?," International Journal of Forecasting, Elsevier, vol. 39(1), pages 364-390.
    20. Heyer, Eric & Reynes, Frederic & Sterdyniak, Henri, 2007. "Structural and reduced approaches of the equilibrium rate of unemployment, a comparison between France and the United States," Economic Modelling, Elsevier, vol. 24(1), pages 42-65, January.

    More about this item

    Keywords

    Phillips curve; distributive conflict; natural rate of unemployment profit; saving;
    All these keywords.

    JEL classification:

    • B51 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Socialist; Marxian; Sraffian
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:awu:journl:v:14:y:2020:i:1:p:81-115. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Maria Cristina Barbieri Goes (email available below). General contact details of provider: https://www.bulletinofpe.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.