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Understanding Inflation and Deflation: The Classical Model and Phillips Curve Dynamics

This chapter covers inflation and deflation, linking theoretical models to empirical data. It begins with the classical model of the price level and explores the relationship between unemployment and inflation through the lens of the Phillips Curve, including short-run dynamics and supply shocks. Key figures illustrate these concepts, such as the implications of expected inflation and the natural rate of unemployment (NAIRU). It also discusses historical examples, including the impact of zero interest rates in U.S. history and the cost of reducing inflation post-1980.

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Understanding Inflation and Deflation: The Classical Model and Phillips Curve Dynamics

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  1. Chapter 16. Inflation and Deflation Link to syllabus From page 481 to page 491

  2. The Classical Model of the Price Level. Fig. 16-1, p. 477. Done earlier, as Figure 12-16, p. 367.

  3. Unemployment and Inflation, 1960s. Figure 16-6,-7 p. 485

  4. The Phillips Curve: Concept, and empirical data. (Another text).

  5. AD-AS Model, and the Short Run Phillips Curve. Figure 16-8, p. 486.

  6. The Phillips Curve and Supply Shocks. Fig. 16-9 p. 487.

  7. Expected Inflation and the Short Run Phillips Curve. Fig. 16-10. p. 457.

  8. Unemployment and Inflation, 1961-1990. Figure 16-10, p. 489.

  9. NAIRU and the Long Run Phillips Curve. Fig. 16-11, p. 490 The Classical Model of the Price Level. Fig. 16-1, p. 486. A vertical LRAS is the same as a vertical LRPC. (Can be considered the core of non-interventionist stance).

  10. Disinflation Around the World Post-1980. P. 461

  11. The Cost of Reducing Inflation. Fig. 16-13, p. 462.

  12. Zero Bound (on interest rates) in US History. Fig. 16-14, p. 464. Zero interest rates only in the 1930s

  13. Japan’s Lost Decade. Figure 16-15, p. 464.

  14. Interest Rates Are Now Very Low. Fig. 16-16, p. 465

  15. Inflation and Wages in the U.S. and the Eurozone. Figure 16-3 p. 447 Greater indexing in Europe makes them move more closely together.

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