Phillips Curves, Phillips Lines and the Unemplyment Costs of Overheating

Author/Editor:

Douglas Laxton ; Peter B. Clark

Publication Date:

February 1, 1997

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Most empirical work on the U.S. Phillips curve has had a strong tendency to impose global linearity on the data. The basic objective of this paper is to reconsider the issue of nonlinearity and to underscore its importance for policymaking. After briefly reviewing the history of the Phillips curve and the basis for convexity, we derive it explicitly using standard models of wage and price determination. We provide some empirical estimates of Phillips curves and Phillips lines for the United States and use some illustrative simulations to contrast the policy implications of the two models.

Series:

Working Paper No. 1997/017

Subject:

Disinflation Inflation Unemployment Unemployment rate Wages

English

Publication Date:

February 1, 1997

ISBN/ISSN:

9781451843507/1018-5941

Stock No:

WPIEA0171997

Pages:

50

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