Should Keynesian Economics Dispense with the Phillips Curve?

Abstract

My title should surprise the reader. That is certainly its intent. The presence of some sort of Phillips curve describing the process of sluggish price adjustment is often regarded as a defining characteristic of Keynesian models. Leading Keynesian macroeconomics textbooks all assign a central role to wage and price rigidity and to ‘natural rate’ Phillips curves describing the adjustment of wages and prices. On both sides of the Atlantic, discussions of macroeconomic policy assign a prime role to the concept of the non-accelerating inflation rate of unemployment (NAIRU) and debate its level. Keynesian economists in the USA point to the stability of the Phillips curve in recent years as decisive evidence upholding their position and refuting the views of new-classical economists. In Britain, Key-nesians dolefully track the NAIRU as it continues its upward march into double digits, while remaining resolute in their devotion to the Keynesian paradigm. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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