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The Backward Bending Phillips Curves: A Simple Model

  • Thomas I. Palley

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.

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File URL: http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_151-200/WP168.pdf
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Paper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp168.

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Date of creation: 2008
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Handle: RePEc:uma:periwp:wp168
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  1. 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.
  2. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
  3. 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.
  4. 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.
  5. David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
  6. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
  7. Palley, Thomas I, 1994. " Escalators and Elevators: A Phillips Curve for Keynesians," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(1), pages 111-16.
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