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Stabilization Theory and Policy: 50 Years after the Phillips Curve

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  • STEPHEN J. TURNOVSKY

Abstract

This paper discusses the impact of A. W. H. Phillips' seminal contributions to stabilization policy on subsequent developments in that field. We review the policy rules introduced by Phillips and show how these relate to the optimal rules emerging from linear–quadratic optimization problems. The consequences of rational expectations for the design of optimal stabilization policy are discussed. These challenges arose from the role of ‘forward-looking’ variables, through issues such as the ‘Lucas Critique’ and the ‘time consistency’ of policy. The paper also discusses some of the contemporary aspects of stabilization policy, thereby highlighting the durability of Phillips' contributions.

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  • Stephen J. Turnovsky, 2011. "Stabilization Theory and Policy: 50 Years after the Phillips Curve," Economica, London School of Economics and Political Science, vol. 78(309), pages 67-88, January.
    • Handle: RePEc:bla:econom:v:78:y:2011:i:309:p:67-88
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    File URL: http://hdl.handle.net/10.1111/j.1468-0335.2009.00807.x
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    2. Agénor, Pierre-Richard & Pereira da Silva, Luiz A., 2014. "Macroprudential regulation and the monetary transmission mechanism," Journal of Financial Stability, Elsevier, vol. 13(C), pages 44-63.
    3. Turnovsky, Stephen J., 2011. "On the role of small models in macrodynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1605-1613, September.
    4. Greg Hannsgen, 2012. "Fiscal Policy, Unemployment Insurance, and Financial Crises in a Model of Growth and Distribution," Economics Working Paper Archive wp_723, Levy Economics Institute.
    5. Scobie, Grant M, 2020. "If Bill Phillips were Governor ...? Some implications of his work for contemporary macroeconomic policy," Working Paper Series 21096, Victoria University of Wellington, Chair in Public Finance.
    6. David Bonilla & David Banister & Uberto Salgado Nieto, 2022. "Tax or Clean Technology? Measuring the True Effect on Carbon Emissions Mitigation for Sweden and Norway," Energies, MDPI, vol. 15(11), pages 1-24, May.
    7. Greg Hannsgen, 2014. "Fiscal Policy, Chartal Money, Mark-up Dynamics and Unemployment Insurance in a Model of Growth and Distribution," Metroeconomica, Wiley Blackwell, vol. 65(3), pages 487-523, July.
    8. Giovanni Bella, 2017. "Beyond the Accelerating Inflation Controversy: The Jerk and Jounce Price Variation," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 3(11), pages 315-322, 11-2017.

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