Friedman And Phelps. At the height of the phillips curve s popularity as a guide to policy edmund phelps and milton friedman independently challenged its theoretical underpinnings. Together with milton friedman edmund phelps is responsible for elaborating the concept of the natural rate of unemployment in the end of the 1960 s although they have worked independently in their respective elaborations.
Together with milton friedman edmund phelps is responsible for elaborating the concept of the natural rate of unemployment in the end of the 1960 s although they have worked independently in their respective elaborations. Phelps sought to explain the phenomenon of stagflation or the instability of the phillips curve in terms of inflationary expectations. Changes in inflationary expectations cause shifts in the phillips curve.
Phelps and friedman argued that there was a separate short run pc for each expected rate of inflation.
Changes in inflationary expectations cause shifts in the phillips curve. In the late 1960s the stable negatively sloped phillips curve was overturned by the friedman phelps natural rate model. Their pc was vertical in the long run at the natural unemployment rate and their short run curve shifted up whenever unemployment was pushed below the natural rate. Changes in inflationary expectations cause shifts in the phillips curve.
