Macroeconomics: The Phillips Curve

[@KlausPrettner]

Thank you for watching the video and for leaving your comments. If you are interested in more videos on Intermediate Macroeconomics, the full lecture can be found here: The Goods Market: kzbin.info/www/bejne/oJjJhHhsn6aLja8 The Multiplier Effect: kzbin.info/www/bejne/b5bIc5yurbaUldE The IS Curve: kzbin.info/www/bejne/nWfEk5Rmi5ucnNE Movements Along the Curve or Shifts of the Curve: kzbin.info/www/bejne/goOYhGeugZV3gKc The Money Market: kzbin.info/www/bejne/f2PMho2MpLCeo5I The LM Curve: kzbin.info/www/bejne/d2bNh5Jmj66Fi5Y The IS-LM Model: kzbin.info/www/bejne/m5CWlJ-fmayjnKc The Labor Market: kzbin.info/www/bejne/qGnUg5mVoK6Ym80 The Phillips Curve: kzbin.info/www/bejne/mWaYeK1npLClbdk The IS-LM-PC Model: kzbin.info/www/bejne/bavZlGR7eLN7d9E Exchange Rates: kzbin.info/www/bejne/h3zJaJmHeM-ZjLs Purchasing Power Parity: kzbin.info/www/bejne/ZmGrZJuOe51ohNU Interest Rate Parity: kzbin.info/www/bejne/lX25gZucd6d6hNU Goods Market in the Open Economy: kzbin.info/www/bejne/eYSQl52pipmLeLM Fiscal Policy and the Multiplier in the Open Economy: kzbin.info/www/bejne/rWbEmKihmLp_q9E Open Economy: Effects of Increases in Foreign Demand: kzbin.info/www/bejne/nHTdoolugKp5ntk Open Economy: Effects of a Currency Depreciation: kzbin.info/www/bejne/sIXdkmOOhJJoaLM Reducing the Trade Deficit: kzbin.info/www/bejne/iWawp2CNeJuchM0 The Marshall-Lerner Condition: kzbin.info/www/bejne/j6iWimpqeaqam5o The Mundell-Fleming Model: kzbin.info/www/bejne/r4PIl6aQmbpkhNE The Solow Model: kzbin.info/www/bejne/qmm0XmWGZbVme5Y The Solow Model with Technological Progress: kzbin.info/www/bejne/qYHCloSlhbJ0gck

[@suindude8149]

This is the classic expression in case of the responsiveness.The Phillips curve shows there is an expectation leveraged wage price relationship in case of wage inflation which will endogenous in nature but the exogeneoous in responsiveness of the responsiveness in case of price say the percentage change in the price would be a great idea to represent the inflation in that case I am finding out an equation wherein the expected price hike or inflation is equal to the leveraged expectation of the wage rate inflation and both are equal. In this case we can find an useful responsiveness of wage rate to the inflation.As inflation rate is high then it is observed that the wage rate responses to the higher or in the case the inflationary elasticity of wage rate is higher.Thus we can conclude that the expectation of getting higher wages or stability is higher.To some extent it goes towards the cut down the unemployment rate.

[@mkanwal1823]

Nice 👍

[@KlausPrettner]

Thank you!

[@mkanwal1823]

Welcom

[@sparrowp2251]

could you please explain how does the approximation in the hold true when expected inflation ,actual inflation and markup are low also where did that approximation come from ?

[@KlausPrettner]

Thank you for your question! Mathematically, this can be shown using a Taylor series expansion. At the point where expected inflation and actual inflation are zero, the approximation is perfect. If they are low, the approximation is typically quite good. You can also check with given numbers. For small values you will see that the approximation holds reasonably well, for larger inflation and expected inflation, the approximation gets worse.

[@nithyabajjuri2591]

why do we add a 1 in the 1-au+z equation?

[@KlausPrettner]

If the effects of unemployment u and the catchall variable z exactly offset each other in the wage bargaining process, then wages would follow the expected price level (inflation is exactly compensated by a wage rise). This is only the case if we have "1" in the equation. If this term were absent, the wage would be zero, which does not make sense. I hope this helps.