Historical Stability of Inflation Expectations
The continuous updating of inflation expectations, which causes the Phillips curve to shift, is not a constant feature of all economic periods. Historically, there have been long spans of time where this mechanism was not active. For instance, Bill Phillips' original study of the UK economy covered a fifty-year period where the inflation-unemployment trade-off remained stable, indicating that expectations were not being constantly revised.
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Introduction to Macroeconomics Course
Ch.4 Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
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Historical Stability of Inflation Expectations
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An economist observes that in a particular country during the 19th century, a 1% decrease in the unemployment rate was consistently associated with a 0.5% increase in the rate of inflation over several decades. However, in the late 20th century, this relationship broke down and became unpredictable. What is the most likely explanation for the initial stability of this trade-off?
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The observed trade-off between the rate of inflation and the unemployment rate has been a consistently unstable and shifting relationship throughout all historical economic periods.