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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
    as

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    File URL: https://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_151-200/WP168.pdf
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    References listed on IDEAS

    as
    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. 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. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
    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. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-793, August.
    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.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    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

    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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