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THE PHILLIPS CURVE AND AN ASSUMED UNIQUE MACROECONOMIC EQUILIBRIUM IN HISTORICAL CONTEXT

Published online by Cambridge University Press:  18 November 2016

Richard G. Lipsey
Richard G. Lipsey*
Affiliation:
Emeritus Professor of Economics, Simon Fraser University, [email protected].
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Abstract

An early post-WWII debate concerned the most desirable demand and inflationary pressures at which to run the economy. Context was provided by Keynesian theory devoid of a full employment equilibrium and containing its mainly forgotten, but still relevant, microeconomic underpinnings. A major input came with the estimates provided by the original Phillips curve. The debate seemed to be rendered obsolete by the curve’s expectations-augmented version with its natural rate of unemployment, and associated unique equilibrium GDP, as the only values consistent with stable inflation. The current behavior of economies with the successful inflation targeting is inconsistent with this natural-rate view, but is consistent with evolutionary theory in which economies have a wide range of GDP-compatible stable inflation. Now the early post-WWII debates are seen not to be as misguided as they appeared to be when economists came to accept the assumptions implicit in the expectations-augmented Phillips curve.

Type
Articles
Information
Journal of the History of Economic Thought , Volume 38 , Issue 4 , December 2016 , pp. 415 - 429
Copyright
Copyright © The History of Economics Society 2016 

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