Phillips Curve

The Phillips Curve began as A.W. Phillips's 1958 documentation of an inverse empirical relationship between unemployment and the rate of change of nominal wages in UK data from 1861-1957, which Samuelson and Solow translated to a US context as a stable inflation-unemployment trade-off available for policy exploitation. Friedman and Phelps independently argued in the late 1960s that any such trade-off was a short-run phenomenon driven by inflation expectations errors, and that the long-run Phillips curve was vertical at the natural rate of unemployment — a prediction substantially vindicated by 1970s stagflation. The expectations-augmented Phillips Curve became the workhorse of monetary policy thinking through inflation-targeting regimes, but the apparent flattening of the empirical curve from the 1990s onward (particularly through the 2010s expansion) and its sudden steepening in 2021-2022 have produced a substantial ongoing debate about the framework's reliability for policy.