Phillips Curve in the Frame of Microeconomic Dynamics

Abstract

The Phillips curve is a basic tool for students to understand relations between unemployment, money wage growth and inflation rates. Economic dynamics literature consists of plenty worth analyses of the Phillips curve (see Shone; 2003 or Gandolfo; 2005). In analyses is mostly automatically assumed that Phillips curve defines money wage growth rate, or inflation rate as a decreasing and convex function of unemployment rate, or output gape and as an increasing function of expected money wage growth, or expected inflation rate. Some basic models of the economic dynamics are origin dynamic models of the market equilibrium. If the subject of dynamic analyses is labour market – market commodity is labour and its price is money wage – we can derive Phillips curve. In our opinion, by this derivation could be extended books and lectures of economic dynamics. Such analyses could help student to understand why Phillips curve is for example decreasing or why it should be augmented by expectations. Similar analyses will provide our paper.

Keywords: Phillips curve, cobweb model, adaptive expectations

JEL Classification: C02, C62