Phillips Curve
Since 2008 inflation has been closely linked to oil prices. If during the first half of 2008 were strong inflationary pressures for the cost of crude in the second half was the opposite effect, resulting in crashes that will extend the current course as reflected in the CPI 2009. Obviously the economic crisis and rising unemployment have also had to blame the fall in the CPI to negative rates in March, as households have reduced consumption, and many businesses have responded by adjusting their price. In macroeconomics, the Phillips curve is a supposed inverse relationship between inflation and unemployment. If we place a coordinate axis of abscissae in the unemployment rate and those ordered in the inflation rate, we obtain a curve with negative slope, similar to the demand.
The Phillips curve relates inflation to unemployment and suggests that a policy aimed at price stability promotes unemployment. Therefore, some level of inflation is necessary in order to minimize this.
Although this theory was used in many countries to maintain low unemployment figures, while high inflation was tolerated, experience has shown that a country can simultaneously have inflation and high unemployment, a phenomenon known as stagflation. This led to most economists abandon this idea.
This aptly describes the experience curve of EE. UU. In the 1960s, where the policy of controlling inflation causes a contraction in the economy, increasing unemployment. However, this curve is not applicable to the phenomenon that experiment that country in the 1970s, the stagflation, which resulted in a high inflation coupled with economic stagnation.
Phillips curve – NAIRU in the long and short term
New theories, such as rational expectations (Robert Lucas, Thomas Sargent and Robert Barro) and the NAIRU (non-accelerating inflation rate of unemployment or unemployment non-accelerating inflation) emerged to explain the situations of stagflation. The last theory, also known as the natural rate of unemployment among a distinguished curve Phillips (COP) in the short term and long term. The CP in the short term would be like a normal PC but shifted according to changing expectations. In the long run, a single rate of unemployment (the NAIRU or natural rate) is consistent with stable inflation. The COP in the long term, therefore, it would be vertical, so that there would be no relationship between inflation and unemployment.
In areas of this relationship expressed by the Phillips curve include the term “killing rate” that shows the number of percentage points of annual output lost in the process of reducing inflation by one percentage point. Application in the real world was carried out by the United States in 1979 after negative shocks in supply due to the policy followed by OPEC. Vocker Paul, chairman of the Fed at the time mentioned, decided to reduce the inflation rate experienced (10 ) at the expense of growth in the economy which resulted in the greatest economic crisis suffered by the U.S. since the Great Depression (although inflation fell as expected).
As a final analysis it is worth noting that this trade-off between inflation and unemployment described by the Phillips curve occurs naturally in the economy. In cases where governments attempt to exploit their economic policy through the relationship disappears. Such evidence was inadvertently checked by the U.S. economy by increasing public spending during the Vietnam War. Until then the “curve” Phillips became a conglomeration of random data (period 1969-1973) where there are no trend or relationship between the variables of inflation and unemployment.
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