Macroeconomics: The Phillips Curve

I motivate the Phillips curve relationship empirically and derive it mathematically based on the wage-setting and price-setting functions described in the chapter on the labor market. In addition, I describe and discuss different versions of the Phillips curve that have been suggested in the macroeconomic literature: the Phillips curve with i) adaptive expectations, ii) anchored expectations, iii) rational expectations, and iv) hybrid expectations. Finally, I discuss the consequences of these different formulations of the Phillips curve for the tradeoff between inflation and unemployment.
For the full Intermediate Macroeconomics Cource, please see the following lectures:
• Macroeconomics: The Go...
• Macroeconomics: The Mu...
• Macroeconomics: The IS...
• Macroeconomics: Moveme...
• Macroeconomics: The Mo...
• Macroeconomics: The LM...
• Macroeconomics: The IS...
• Macroeconomics: The La...
• Macroeconomics: The Ph...
• Macroeconomics: The IS...
• Exchange Rates
• Purchasing Power Parity
• Interest Rate Parity
• Open Economy: The Good...
• Open Economy: Fiscal P...
• Open Economy: Increase...
• Open Economy: Effects ...
• Open Economy: Reducing...
• Open Economy: The Mars...
• Open Economy Macroecon...
• The Solow Model
• The Solow Model With T...

[@KlausPrettner]

Thank you for watching the video and for leaving your comments. If you are interested in more videos on Intermediate Macroeconomics, the full lecture can be found here:
The Goods Market: ruclips.net/video/jgfSE6jAXWM/видео.html
The Multiplier Effect: ruclips.net/video/9eeBixxQa_o/видео.html
The IS Curve: ruclips.net/video/g6aba0V6ifo/видео.html
Movements Along the Curve or Shifts of the Curve: ruclips.net/video/LR5S4xL0DJE/видео.html
The Money Market: ruclips.net/video/I2iUZVoKkm0/видео.html
The LM Curve: ruclips.net/video/A5jV_0ZIRU4/видео.html
The IS-LM Model: ruclips.net/video/e_3clidGpfE/видео.html
The Labor Market: ruclips.net/video/r8qRf_kIeek/видео.html
The Phillips Curve: ruclips.net/video/c55Gz1oKr7w/видео.html
The IS-LM-PC Model: ruclips.net/video/7zvc1ECNHAo/видео.html
Exchange Rates: ruclips.net/video/QKf7fQCjfVY/видео.html
Purchasing Power Parity: ruclips.net/video/00H3hXF85Ns/видео.html
Interest Rate Parity: ruclips.net/video/_LVPhfBBGNs/видео.html
Goods Market in the Open Economy: ruclips.net/video/CS-fjsU4XBQ/видео.html
Fiscal Policy and the Multiplier in the Open Economy: ruclips.net/video/w5agukcULuo/видео.html
Open Economy: Effects of Increases in Foreign Demand: ruclips.net/video/fCzqV8KEFhw/видео.html
Open Economy: Effects of a Currency Depreciation: ruclips.net/video/zTza0XO-52Q/видео.html
Reducing the Trade Deficit: ruclips.net/video/S5Mv-WC6iNk/видео.html
The Marshall-Lerner Condition: ruclips.net/video/Yw3Y74DEge8/видео.html
The Mundell-Fleming Model: ruclips.net/video/yRefsZdU1No/видео.html
The Solow Model: ruclips.net/video/t8Q-2P0P3E4/видео.html
The Solow Model with Technological Progress: ruclips.net/video/sP_eQoPMAKg/видео.html

[@suindude8149]

This is the classic expression in case of the responsiveness.The Phillips curve shows there is an expectation leveraged wage price relationship in case of wage inflation which will endogenous in nature but the exogeneoous in responsiveness of the responsiveness in case of price say the percentage change in the price would be a great idea to represent the inflation in that case I am finding out an equation wherein the expected price hike or inflation is equal to the leveraged expectation of the wage rate inflation and both are equal.
In this case we can find an useful responsiveness of wage rate to the inflation.As inflation rate is high then it is observed that the wage rate responses to the higher or in the case the inflationary elasticity of wage rate is higher.Thus we can conclude that the expectation of getting higher wages or stability is higher.To some extent it goes towards the cut down the unemployment rate.

[@sparrowp2251]

could you please explain how does the approximation in the hold true when expected inflation ,actual inflation and markup are low also where did that approximation come from ?

[@KlausPrettner]

Thank you for your question! Mathematically, this can be shown using a Taylor series expansion. At the point where expected inflation and actual inflation are zero, the approximation is perfect. If they are low, the approximation is typically quite good. You can also check with given numbers. For small values you will see that the approximation holds reasonably well, for larger inflation and expected inflation, the approximation gets worse.

[@nithyabajjuri2591]

why do we add a 1 in the 1-au+z equation?

[@KlausPrettner]

If the effects of unemployment u and the catchall variable z exactly offset each other in the wage bargaining process, then wages would follow the expected price level (inflation is exactly compensated by a wage rise). This is only the case if we have "1" in the equation. If this term were absent, the wage would be zero, which does not make sense. I hope this helps.

[@mkanwal1823]

Nice 👍

[@KlausPrettner]

Thank you!

[@mkanwal1823]

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