Suppose that the economics department is planning a series of briefings to introduce economics graduates to the latest developments in economics. In order to ensure that the topics chosen are consistent with what the target audience is most interested in, the department conducts a survey of economics graduates and discovers that most of them have heard disturbing claims such as the “missing Phillips curve” and the “inflationary enigma” and are eager to learn more about these issues. As a result, the department chair asked for a brief that would explain in detail why the aforementioned concerns about the Phillips curve existed.
Paper should address the following issues.
(a) Explain what is a Phillips Curve relationship and provide the reader with a sense of the variety of Phillips curve and why one Phillips curve might differ from another.
(b) Explain the economic interpretation of the slope of the Phillips curve and the policy implications of say a relatively steep Phillips curve vs a relatively flat Phillips curve.
(c) Explain the economic interpretation of shifts in the Phillips curve and the policy implications of a shifting Phillips curve. Also identify factors that are likely to lead to a shift in the Phillips Curve.
(d) Given the background information you have communicated in addressing issues (a) through (c), carefully explain why economist are concerned that the Phillips Curve is “missing”. What are the implications of the “missing Phillips Curve” for monetary policy?
(e) Provide readers with a summary of the various explanations economists have advanced in their attempt to explain the reasons underlying the missing Phillips Curve. Given that there are several potential explanations, tell readers which explanation you find most persuasive and why?
(f) Given the recent experience with inflation in the US, how has the “missing Phillips Curve” affected the effectiveness of the Fed’s efforts to bring inflation back to its 2 percent target without incurring the costs of a recession? Is the Philips Curve still “missing”?
