Phillips Curve stuff

WCEG
The death of the Phillips Curve is the time to lift up new economic indicators

Kate Bahn, Austin Clemens

Uneasy Money
Mankiw’s Phillips-Curve Agonistes
David Glasner | Economist at the Federal Trade Commission

Is There Really A Trade-Off Between Inflation And Unemployment? — Brian Romanchuk

Rather than attempt to explain what the mainly neoclassical economists are going on about, I want to step back and try to translate their debate into terms that would be understood by people who do not share the same assumptions. I am pretty sure that post-Keynesian economists have a lot to say about the topic as well, but once again, they tend to be discussing wonkish points that would elude an outsider.…

I have an engineering background, and engineering is largely the science of trade-offs. I have no strong objections to qualitative discussions, but I would argue that we need to at least know the sign of the exchange ratio between two variables in order to say that there is a trade-off between them.

Very simply, if we can have a policy that lowers both the unemployment rate and the inflation rate (or at least leaves inflation unchanged), we cannot pretend there is a meaningful "trade-off" between them.

And this is hardly theoretical: in the United States, we saw a near monotonic decrease in the unemployment rate after the Financial Crisis, yet the inflation rate has done absolutely nothing interesting....

Bond Economics
Is There Really A Trade-Off Between Inflation And Unemployment?
Brian Romanchuk

Is There a Relationship between Inflation and Unemployment? — Menzie Chinn

While the equation fits relatively well, clearly it’s not perfect. As of 2019Q2 (first two months), year-on-year PCE inflation is underpredicted by 40 bps. I estimated the equation on a restricted sample ending in 2014; this imparts only a marginal difference — so it’s not that something has changed substantially over the last 4 and a half years. Rather the specification could be improved.

In other words, perhaps a different measure of NAIRU, or a nonlinearity might improve the fit. However, these specification or measurement errors do not invalidate the concept of the Phillips curve. More graphs (from my undergrad course), using the output gap, here.

For more on a cross country basis, see a recent working paper by Blanchard, Cerutti, and Summers (2015). They show that the slope of the Phillips curve has dropped around the early 1990’s; those who rely upon very old stylized facts might be excused for thinking the Phillips curve had gone AWOL.

Econbrowser
Is There a Relationship between Inflation and Unemployment?
Menzie Chinn | Professor of Public Affairs and Economics, Robert M. La Follette School of Public Affairs, University of Wisconsin–Madison, co-editor of the Journal of International Money and Finance, and a Research Associate of the National Bureau of Economic Research International Finance and Macroeconomics

See also

Information Transfer Economics
The Phillips Curve: An Overview
Jason Smith

Trump's top economic adviser praises Alexandria Ocasio-Cortez, wants to meet with her on Fed ... — Bloomberg

President Donald Trump’s top economic adviser praised left-wing Democrat Alexandria Ocasio-Cortez, after the political rivals found common ground in urging the Federal Reserve not to worry about low unemployment triggering inflation.

“I’ve got to give her high marks for that,” Larry Kudlow told Fox News on Thursday, referring to Ocasio-Cortez’s quizzing of Federal Reserve Chair Jerome Powell in Congress the previous day....

At least they agree that the Phillips Curve is wrong.

Financial Express
Trump's top economic adviser praises Alexandria Ocasio-Cortez, wants to meet with her on Fed ...

Bloomberg

Mish Shedlock — Yet Another Fed Study Concludes Phillip's Curve is Nonsense

The Phillips Curve, an economic model developed by A. W. Phillips purports that inflation and unemployment have a stable and inverse relationship. 

This has been a fundamental guiding economic theory used by the Fed for decades to set interest rates. Various studies have proven the theory is bogus, yet proponents keep believing.…

Without the Phillips Curve, the current approach to monetary policy is groundless other than "discretionary." There is no rule.

And it's not just the Phillips Curve that is nonsense. So is the concept of the natural rate of interest, which is theoretical (assumption-dependent) rather than observable. The assumptions don't hold water, and the results based on targeting a natural rate of interest and non-accelerating rate of unemployment (NAIRU) have little empirical justification, either using a rule or discretion have not been impressive, to say the least.

Oh, and the Fed has no satisfactory theory of inflation. How to target something that isn't identified, especially when it is based on "expectations."

MishTalk
Yet Another Fed Study Concludes Phillip's Curve is Nonsense
Mish Shedlock

Jason Smith — It's the 80s!

Interesting look at the history.

Information Transfer Economics
It's the 80s!
Jason Smith

David P. Goldman — There ain’t-a no Phillipsy Curve, once again

If we get inflation, it could be minus wage pressure across the board but only in places were the labor supply is short. Ordinary workers may not see much relief in the expansion, replicating their situation in the long and slow recovery period, owing to structural shifts in the economy — downsizing, offshoring, automation and robotics, etc.

Asia Times
There ain’t-a no Phillipsy Curve, once again

David P. Goldman

Do Phillips Curves Conditionally Help to Forecast Inflation?

Abstract

This paper reexamines the forecasting ability of Phillips curves from both an uncon- ditional and conditional perspective by applying the method developed by Giacomini and White (2006). We find that forecasts from our Phillips curve models tend to be unconditionally inferior to those from our univariate forecasting models. Significantly, we also find conditional inferiority, with some exceptions. When we do find improvement, it is asymmetric – Phillips curve forecasts tend to be more accurate when the economy is weak and less accurate when the economy is strong. Any improvement we find, however, vanished over the post-1984 period.

Federal Reserve Bank of Philadelphia
Do Phillips Curves Conditionally Help to Forecast Inflation?
Michael Dotsey, Shigeru Fujita, and Tom Stark

Bill Mitchell — There is nothing much that Milton Friedman got right!

“If we want to ensure more people are well-employed, central banks alone will certainly not suffice” is a quote I am happy to republish because I consider it to be 100 per cent accurate. The only problem is that the way I think about that statement and construct its implications is totally at odds with the intent of its author, who claimed it was “an important lesson of Friedman’s speech”, which “remains valid”. The quote appeared in a recent Bloomberg article (July 17, 2017) – What Milton Friedman Got Right, and Wrong, 50 Years Ago – written by journalist Ferdinando Giugliano. It celebrates the Presidential Speech that Friedman gave to the American Economic Association on December 29, 1967 at their annual conference in Washington D.C. In terms of the contest of paradigms, the speech is considered to be the starting point proper of the Monetarist era, even though it took at least another 5 or 6 years (with the onset of the OPEC oil crises) for the gospel espoused by Friedman to really gain ground. The problem is that Friedman was selling snake oil that became the popular litany of the faithful because it suited those who wanted to degrade the role of government in maintaining full employment. It was in step with the push by capital to derail the Post War social democratic consensus that had seen real wages growing in proportion with productivity, reduced income inequality, jobs for all who wanted to work and a strong sense of collective solidarity emerge in most advanced nations. This consensus was the anathema of the elites who saw it as squeezing their share of national income and giving too much power to workers to negotiate better terms and conditions in their work places. Friedman provided the smokescreen for hacking into that consensus and so began the neo-liberal era. We are still enduring its destructive consequences.

Friedman’s speech was subsequently published in the American Economic Review as ‘The Role of Monetary Policy’ in the 1968 volume 58(1) (pages 1-17). 

The Bloomberg article goes along with the view that Friedman’s speech represented a “paradigm shift” in economics....

Bill Mitchell – billy blog
There is nothing much that Milton Friedman got right!
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Lars P. Syll — NAIRU religion

Olivier Blanchard learns worse than nothing from his stint as chief economist for the IMF.

Lars P. Syll’s Blog
NAIRU religion
Lars P. Syll | Professor, Malmo University

Chris Dillow — What Phillips curve?

Economists have recently been abandoning once-core concepts in macroeconomics such as the money multiplier and IS-LM model. This week's figures remind me of something I'd also throw on the bonfire - the Phillips curve.

Bill Mitchell and Joan Muysken have already done that in Full Employment Abandoned: Shifting Sands and Policy Failures (Elgar, 2008).

Stumbling and Mumbling
What Phillips curve?
Chris Dillow | Investors Chronicle

Chris Dillow — What Phillips Curve?

A more benign possibility is that such thinking is a way of smuggling demand management into monetary policy. The belief (or statement!) that a big output gap would reduce inflation allowed the Bank to slash rates in 2008-09. In truth, the claim "bugger inflation: let's try and save the economy" would have done just as well, but waffle about spare capacity allowed the Bank to appear to reconcile demand management with inflation targeting.

There is, though, a nastier possibility which Michal Kalecki famously pointed out - that the possibility of fuller employment makes many capitalists rather jumpy. But then, Kalecki can't possibly have been right, can he?

Stumbling and Mumbling
What Phillips Curve?
Chris Dillow | Investors Chronicle

Bill Mitchell — Why we have to learn about the NAIRU (and reject it)

I have very little time today to write, first a very long flight and then preparation for a major release tomorrow of our latest Employment Vulnerability Index (EVI), which measures the risk of localised communities in Australia of unemployment as the economy slows. We have a very neat mapping tool and I will write about that tomorrow once the press launch occurs (first thing). But I am also working on various other papers and, as usual, have become immersed in the Phillips curve. I remember when I first started by PhD at the University of Manchester in the early 1980s, my then supervisor said to me on the first day that once I started modelling inflation and unemployment (the Phillips curve) I would never stop. Among other truths he uttered during my time in that dank part of the world that statement was spot on. Every now and then I return to the topic and update, revise, re-create and (sometimes) even innovate. So today’s blog is just a collection of snippets of the more accessible things I have been working on over the last few days. It starts with a graph that appeared in the IMF’s World Economic Outlook in April 2013. Then follow the graphs. Conclusion: The NAIRU as estimated is a very dangerous concept for the well-being of ordinary people.

Bill Mitchell – billy blog
Why we have to learn about the NAIRU (and reject it)
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia

Brad DeLong — A Comment On A Talk By Warren Mosler...

More about Lerner than Mosler.

Is there another way to break Lerner's argument as long as we believe in the accelerationist Phillips curve--as long as we believe that full employment also produces inflation outcomes equal to inflation expectations?

Phillips curve? See Bill Mitchell, Questions and Answers 3, Question 2 for a summary of the MMT answer. Bill's definitive treatment is found in Full Employment Abandoned, Part 1.

Professor DeLong is stuck in mainstream thinking and hasn't caught up with the trend yet.

And beowulf cites Lerner's later thinking in a comment to DeLong's post.

So it seems that Professor DeLong understands neither Lerner's mature thinking (MAP, with David Collander) nor the MMT position.

But it's a good question from someone newly becoming acquainted with PKE, Hyman Minsky, and MMT, and one that frequently comes up. So MMT proponents should know how to explain it.

Brad DeLong
A Comment On A Talk By Warren Mosler...
J. Bradford DeLong | Professor of Economics, UCAL Berkeley

Bill Mitchell — Unemployment and Inflation – Part 12

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

This is the continuation of the Chapter on unemployment and inflation – the series so far is:

• Unemployment and inflation – Part 1
• Unemployment and inflation – Part 2
• Unemployment and inflation – Part 3
• Unemployment and inflation – Part 4
• Unemployment and inflation – Part 5
• Unemployment and Inflation – Part 6
• Unemployment and Inflation – Part 7
• Unemployment and Inflation – Part 8
• Unemployment and Inflation – Part 9
• Unemployment and Inflation – Part 10
• Unemployment and Inflation – Part 11

I am now continuing the discussion of the Phillips Curve …
Chapter 12 – Unemployment and Inflation

12.X Demand-pull and Cost-push inflation

Bill Mitchell — billy blog
Unemployment and Inflation – Part 12
Bill Mitchell

Bill Mitchell — Unemployment and Inflation – Part 11

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

This is the continuation of the Chapter on unemployment and inflation – the series so far is:

▪ Unemployment and inflation – Part 1
▪ Unemployment and inflation – Part 2
▪ Unemployment and inflation – Part 3
▪ Unemployment and inflation – Part 4
▪ Unemployment and inflation – Part 5
▪ Unemployment and Inflation – Part 6
▪ Unemployment and Inflation – Part 7
▪ Unemployment and Inflation – Part 8
▪ Unemployment and Inflation – Part 9
▪ Unemployment and Inflation – Part 10

I am now continuing the discussion of the Phillips Curve …

Chapter 12 – Unemployment and Inflation

12.X Underemployment and the Phillips curve

Bill Mitchell — billy blog
Unemployment and Inflation – Part 11
Bill Mitchell

Bill Mitchell — Unemployment and Inflation – Part 10

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

This is the continuation of the Chapter on unemployment and inflation – the series so far is:
▪ Unemployment and inflation – Part 1
▪ Unemployment and inflation – Part 2
▪ Unemployment and inflation – Part 3
▪ Unemployment and inflation – Part 4
▪ Unemployment and inflation – Part 5
▪ Unemployment and Inflation – Part 6
▪ Unemployment and Inflation – Part 7
▪ Unemployment and Inflation – Part 8
▪ Unemployment and Inflation – Part 9 

I am now continuing the discussion of the Phillips Curve …

Chapter 12 – Unemployment and Inflation 

Advanced material – The Rational expectations hypothesis

Bill Mitchell – billy blog
Unemployment and Inflation – Part 10
Bill Mitchell

Bill Mitchell — Unemployment and Inflation – Part 9

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

This is the continuation of the Chapter on unemployment and inflation – the series so far is:

• Unemployment and inflation – Part 1
• Unemployment and inflation – Part 2
• Unemployment and inflation – Part 3
• Unemployment and inflation – Part 4
• Unemployment and inflation – Part 5
• Unemployment and Inflation – Part 6
• Unemployment and Inflation – Part 7
• Unemployment and Inflation – Part 8

I am now continuing the discussion of the Phillips Curve …

Chapter 12 – Unemployment and Inflation

Bill Mitchell — billy blog
Unemployment and Inflation – Part 9
Bill Mitchell

Bill Mitchell — Unemployment and Inflation – Part 8

I am devoting today’s blog time to the continuation of our textbook draft. Tomorrow the Australian Labour Force comes out. The alternative today was going to be an analysis of the lying statements of David Cameron and George Osborne but I will have more of them next week undoubtedly. It will give me more time to examine my “austerity” database, which I wrote about yesterday. So best use of the time today (after a long flight) is to advance our textbook.



This is the continuation of the Chapter on unemployment and inflation – the series so far is:

▪ Unemployment and inflation – Part 1
▪ Unemployment and inflation – Part 2
▪ Unemployment and inflation – Part 3
▪ Unemployment and inflation – Part 4
▪ Unemployment and inflation – Part 5
▪ Unemployment and Inflation – Part 6
▪ Unemployment and Inflation – Part 7

I am now continuing Section 12.6 on the Phillips Curve 

Chapter 12 – Unemployment and Inflation

Bill Mitchell — billy blog
Unemployment and Inflation – Part 8
Bill Mitchell

Bill Mitchell — Unemployment and Inflation – Part 7

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

This is the continuation of the Chapter on unemployment and inflation – the series so far is:

Unemployment and inflation – Part 1Unemployment and inflation – Part 2Unemployment and inflation – Part 3Unemployment and inflation – Part 4Unemployment and inflation – Part 5Unemployment and Inflation – Part 6

I am now continuing Section 12.6 on the Phillips Curve …

Chapter 12 – Unemployment and Inflation

Bill Mitchell — billy blog
Unemployment and Inflation – Part 7
Bill Mitchell