The Economics of the Phillips Curve: Formation of Inflation Expectations versus Incorporation of Inflation Expectations

Arbeitspapier

This paper examines the theory of the Phillips curve, focusing on the distinction between "formation" of inflation expectations and "incorporation" of inflation expectations. Phillips curve theory has largely focused on the former. Explaining the Phillips curve by reference to expectation formation keeps Phillips curve theory in the policy orbit of natural rate thinking where there is no welfare justification for higher inflation even if there is a permanent inflation - unemployment trade-off. Explaining the Phillips curve by reference to incorporation of inflation expectations breaks that orbit and provides a welfare economics rationale for Keynesian activist policies that reduce unemployment at the cost of higher inflation.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IMK Working Paper ; No. 4/2011

Classification and Topics

• Classification: Wirtschaft ; Macroeconomics and Monetary Economics: General ; Price Level; Inflation; Deflation ; Monetary Policy
• Subject: Phillips curve ; formation of inflation expectations ; incorporation of inflation expectations ; backward bending Phillips curve. ; Phillips-Kurve ; Inflationserwartung ; Keynesianismus ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Palley, Thomas I.
• Event: Veröffentlichung
• (who): Hans-Böckler-Stiftung, Institut für Makroökonomie und Konjunkturforschung (IMK)
• (where): Düsseldorf
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/105946
• URN: urn:nbn:de:101:1-201202285186
• Last update: 10.03.2025, 11:44 AM CET