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The Backward Bending Phillips Curves: A Simple Model

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  • Thomas I. Palley

Abstract

This paper develops a simple macroeconomic model of the backward bending Phillips curve that allows easy comparison with the neo-Keynesian and new classical models of the Phillips curve. There are two separate explanations of the backward bending Phillips curve and the model incorporates both. One explanation focuses on near-rational inflation expectations and aggregation of expectations across workers. The other explanation focuses on nominal wage setting behavior and aggregation of nominal wage behavior across sectors. The paper concludes with some observations about the implications of the backward bending Phillips curve for monetary policy.

Suggested Citation

  • Thomas I. Palley, 2008. "The Backward Bending Phillips Curves: A Simple Model," Working Papers wp168, Political Economy Research Institute, University of Massachusetts at Amherst.
    • Handle: RePEc:uma:periwp:wp168
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    File URL: https://per.umass.edu/fileadmin/pdf/working_papers/working_papers_151-200/WP168.pdf
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    References listed on IDEAS

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    1. 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.
    2. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
    3. 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.
    4. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-793, August.
    5. 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, Taylor & Francis Journals, vol. 8(3), pages 447-462, March.
    6. Palley, Thomas I, 1994. " Escalators and Elevators: A Phillips Curve for Keynesians," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(1), pages 111-116.
    7. David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
    8. 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.
    9. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678-678.
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    1. Why the "Sound Money" Components of Popular Economic Freedom Indexes Should Be Used with Caution
      by Ed Dolan in Ed Dolan's Econ Blog on 2018-04-04 13:45:00

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    Cited by:

    1. Novella Maugeri, 2010. "Macroeconomic Implications of Near Rational Behavior: an Application to the Italian Phillips Curve," Department of Economics University of Siena 587, Department of Economics, University of Siena.
    2. Alejandro Rodríguez Arana, 2015. "The share of wages in national income and its effects in the short and long run economic activity and growth," Working Papers 0215, Universidad Iberoamericana, Department of Economics.

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    More about this item

    Keywords

    Backward bending Phillips curve; minimum unemployment rate of inflation;

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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