The Phillips Curve and U.S. Macroeconomic Policy: Snapshots, 1958-1996 by ProQuest

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									                  Economic Quarterly—Volume 94, Number 4—Fall 2008—Pages 311–359




The Phillips Curve and U.S.
Macroeconomic Policy:
Snapshots, 1958–1996
                                                                         Robert G. King




T
         he curve first drawn by A.W. Phillips in 1958, highlighting a negative
         relationship between wage inflation and unemployment, figured
         prominently in the theory and practice of macroeconomic policy during
1958–1996.
     Within a decade of Phillips’ analysis, the idea of a relatively stable long-
run tradeoff between price inflation and unemployment was firmly built into
policy analysis in the United States and other countries. Such a long-run
tradeoff was at the core of most prominent macroeconometric models as of
1969.
     Over the ensuing decade, the United States and other countries experi-
enced stagflation, a simultaneous rise of unemployment and inflation, which
threw the consensus about the long-run Phillips curve into disarray. By the
end of the 1970s, inflation was historically high—near 10 percent—and poised
to rise further. Economists and policymakers stressed the role of shifting ex-
pectations of inflation and differed widely on the costliness of reducing infla-
tion, in part based on alternative views of the manner in which expectations
wer
								
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