The Hypothesis of a Different Nature of the Phillips Curve and Its Impact on Financial Flows

Abstract

The Phillips curve is one of the most widely debated economic patterns. Its practical application, including for adjusting monetary policy, still causes significant disagreement among economists. In this regard, understanding the nature (essence) of the Phillips curve is an urgent task. The purpose of the study is to substantiate the hypothesis that the Phillips curve is based on a different pattern than is currently believed among economists. Methods of analysis and synthesis, system and logical analysis, were used. The empirical basis of the study is based on statistical data of the US economy for the period from 1980 to 2022. The essence of the study: real analysis of economic indicators (real wages, real GDP, etc.) in the vast majority of cases takes precedence over nominal analysis of economic indicators (nominal wages, nominal GDP, etc.). These two analyzes are the same if prices remain constant. It was during this period of Phillips’s study of the British economy (1862–1913) that prices remained virtually unchanged. The rest of the Phillips curve (1914–1957) was heavily influenced by non-economic factors and may therefore be less significant. Since Phillips originally defined his curve as an inverse relationship between nominal wages and unemployment, at constant prices this means that there is an inverse relationship between real wages and unemployment. This dependence is explained by the author by the fact that the UK economy already had a cyclical pattern, when during economic growth real wages rise and unemployment falls, and vice versa. Conclusion: It is quite reasonable to believe that the above curve shows an inverse relationship between fluctuations in unemployment and fluctuations in real wages.

Keywords

• finance
• unemployment
• economic cyclicality
• real wages
• phillips curve
• modern us economy