April 26, 2003

The Phillips Curve

To explain business cycles, the Classical Model relies on shifts in the aggregate supply curve and the IS/LM Model relies on shifts in the aggregate demand curve. A strict interpretation of the Classical Model is that the unemployment rate is always zero, implying a vertical Phillips Curve on the vertical axis. The Keynesian prediction, on the other hand, matches the data for 1948 to 1969 reasonably well.

The supply side economists emphasized the role of production in their extension of the Classical Model. This focus on production fit well with Phillips Curve data from 1970 to 1985.


Posted by bparke at April 26, 2003 03:58 PM