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The Phillips curve as a long-run phenomenon in a macroeconomic model with complex dynamics

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  • Colombo, Luca
  • Weinrich, Gerd

Abstract

After the presentation of the Phillips curve as an empirical regularity (Phillips 1958 ) economists and policy makers alike have tried to exploit it for policy purposes. Even before the oil shocks in the seventies and early eighties this has had mixed success only. With the advent of "stagflation" the Phillips curve seemed to be definitely dead but nowadays a majority of economists seems to agree that an inverse relationship between inflation and unemployment holds as long as changes in output and prices are demand-driven. Stagflation occurs only when supply-side shocks occur. Recently, new explanations have been advanced both to investigate theoretically and estimate empirically the Phillips curve and to assess its potential for economic policy. (See for example the special issue of the Journal of Monetary Economics (Vol. 44, N.2, 1999) on "The Return of the Phillips Curve".) In the present paper we aim to contribute to this discussion by showing that the Phillips curve may be obtained as the image of a chaotic attractor of the state variables of a non-linear dynamical system describing the evolution of an economy. This has two important consequences: on the one hand the Phillips curve in our model is a true long-run phenomenon and, on the other, it cannot be used for policy purposes. Our model is based on an overlapping-generations non-tatonnement approach involving temporary equilibria with stochastic rationing in each period and price adjustment between successive periods. In this way we are able to obtain complex sequences of consistent allocations allowing for recurrent unemployment and inflation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 28 (2003)
Issue (Month): 1 (October)
Pages: 1-26

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Handle: RePEc:eee:dyncon:v:28:y:2003:i:1:p:1-26

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Citations

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Cited by:
  1. Baglioni, Angelo & Monticini, Andrea, 2010. "The intraday interest rate under a liquidity crisis: The case of August 2007," Economics Letters, Elsevier, vol. 107(2), pages 198-200, May.
  2. Gerd Weinrich & Luca Colombo, 2004. "Unemployment And Inventories In The Business Cycle," Royal Economic Society Annual Conference 2004 32, Royal Economic Society.
  3. Stefano Colombo, 2008. "Discriminatory prices, endogenous locations and the Prisoner Dilemma problem," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0079, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  4. Angelo Baglioni, 2006. "Entry into a network industry: consumers’ expectations and firms’ pricing policies," DISCE - Quaderni dell'Istituto di Economia e Finanza ief69, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  5. Sandro Brusco & Luca Colombo & Umberto Galmarini, 2010. "Local Governments Tax Autonomy, Lobbying, and Welfare," Department of Economics Working Papers 10-01, Stony Brook University, Department of Economics.
  6. Giuseppe Mastromatteo, 2011. "H.P. Minsky And Policies To Countervail Crises," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0102, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  7. Luca Colombo & Gerd Weinrich, 2006. "The Role of Expectations in a Macroeconomic Model with Inventories," Computing in Economics and Finance 2006 65, Society for Computational Economics.
  8. Giuseppe Mastromatteo, 2011. "The Debate on the Crisis: Recent Reappraisals of the Concept of Functional Finance," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0105, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  9. Luca Colombo & Herbert Dawid & Kordian Kabus, 2007. "When do Thick Venture Capital Markets Foster Innovation? An Evolutionary Analysis," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0074, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  10. Gerd Weinrich & Luca Colombo, 2005. "Money, Inventories and Underemployment in Deflationary Recessions," Computing in Economics and Finance 2005 156, Society for Computational Economics.
  11. Maria Flavia Ambrosanio & Massimo Bordignon & Floriana Cerniglia, 2008. "Constitutional reforms, fiscal decentralization and regional fiscal flows in Italy," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0084, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

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