Advanced Search
MyIDEAS: Login

The economics of the Phillips curve: Formation of inflation expectations versus incorporation of inflation expectations

Contents:

Author Info

  • Palley, Thomas

Abstract

This paper examines the theory of the Phillips curve, focusing on the distinction between “formation” of inflation expectations and “incorporation” of inflation expectations. Phillips curve theory has largely focused on the former. Explaining the Phillips curve by reference to expectation formation keeps Phillips curve theory in the policy orbit of natural rate thinking where there is no welfare justification for higher inflation even if there is a permanent inflation–unemployment trade-off. Explaining the Phillips curve by reference to incorporation of inflation expectations breaks that orbit and provides a welfare economics rationale for Keynesian activist policies that reduce unemployment at the cost of higher inflation.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0954349X12000082
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Structural Change and Economic Dynamics.

Volume (Year): 23 (2012)
Issue (Month): 3 ()
Pages: 221-230

as in new window
Handle: RePEc:eee:streco:v:23:y:2012:i:3:p:221-230

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/525148

Related research

Keywords: Phillips curve; Inflation expectation formation; Incorporation of inflation expectations; Backward bending Phillips curve;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 721-54, Sept./Oct.
  2. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
  3. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  4. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
  5. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  6. Paul C. Dalziel, 1990. "Market Power, Inflation, and Incomes Policies," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 12(3), pages 424-438, April.
  7. 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.
  8. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  9. Rowthorn, R E, 1977. "Conflict, Inflation and Money," Cambridge Journal of Economics, Oxford University Press, vol. 1(3), pages 215-39, September.
  10. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  11. William Darity, Jr. & Warren Young, 1995. "IS-LM: An Inquest," History of Political Economy, Duke University Press, vol. 27(1), pages 1-41, Spring.
  12. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  13. Palley, Thomas I, 1994. " Escalators and Elevators: A Phillips Curve for Keynesians," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(1), pages 111-16.
  14. Thomas Palley, 1997. "Does Inflation Grease the Wheels of Adjustment? New evidence from the US economy," International Review of Applied Economics, Taylor & Francis Journals, vol. 11(3), pages 387-398.
  15. Anthony Myatt, 1986. "On the Non-Existence of a Natural Rate of Unemployment and Kaleckian Micro Underpinnings to the Phillips Curve," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 8(3), pages 447-462, April.
  16. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
  17. Thomas I. Palley, 2003. "The Backward--Bending Phillips Curve And The Minimum Unemployment Rate Of Inflation: Wage Adjustment With Opportunistic Firms," Manchester School, University of Manchester, vol. 71(1), pages 35-50, January.
  18. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  19. Thomas I. Palley, 1990. "A Theory of Downward Wage Rigidity: Job Commitment Costs, Replacement Costs, and Tacit Coordination," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 12(3), pages 466-486, April.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Further thoughts on Phillips curves
    by Mainly Macro in Mainly Macro on 2014-07-18 08:57:00

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:streco:v:23:y:2012:i:3:p:221-230. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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