The Phillips Curve is back in the news with a vengeance. And, I suspect it’ll be an even hotter topic in the coming months as everyone watches the Federal Reserve (Fed), European Central Bank (ECB) and other central banks to see if or when they slow rate hikes or even lower them again.
Hey Gergely, Yeah, for sure these X-Y charts don't capture it too well. The problem is that the Phillips curve itself is just a correlation and that is something you should be able to look at with scatter plots (X-Y charts). Therefore your point that the X-Y chart isn't good actually argues more deeply that the Phillips curve - as presented - isn't too good and I think you are right. That is why I tell the story (maybe in this column, maybe another one) using time series where you can see the inflation, output and unemployment moving. Thanks though and I'll think about how to present this data in different ways...
Hi Chris, in my opinion besides the X-Y charts would be very important to look first on the timecharts of the unemployement-inflation. I guess in different decades the time lag between the changing of those 2 factors are different and messes up any X-Y chart.
With some time lag adjustment I think a Philips curve could be drawn for each decade.