Understanding Phillips Curve

This lesson discusses Phillips Curve in detail taking New Zealand’s data on inflation rate and unemployment rate as an example. The educative video talks about Expectation Augmentation Phillips Curve (Friedman and Phelps), along with a brief introduction to regression analysis. For regression analysis, CPI and Unemployment Rate for New Zealand are taken to explain whether the Philips Curve relationship holds in recent years. It is highly advisable to refer to the Statistics online course on The middle Road, to better understand the terminologies used in the lesson. This is part of the stabilization series on The middle Road.

A W Phillips from New Zealand  empirical paper on relationship between unemployment and wages (1861 to 1957) in the United Kingdom. The wage growth extended to inflation as a (growth in wages leads to rise in aggregate demand leading to rise in wages).

The negative relationship between unemployment and inflation is known as Phillips Curve.

Above: LRPC Long Run Phillips Curve. In the long run the economy is at natural rate of unemployment.

Video: The middle Road 

The video takes a look at New Zealand as an example to understand the relation of Phillips Curve.

Refer to the read Honey I Blew Up The Inflation under Insights section on The middle Road.