Phillips Curve – definition
A Phillips Curve is a curve that shows the inverse relationship between unemployment, as a percentage, and the rate of change in prices. It is named after New Zealand economist AW Phillips (1914 – 1975) who derived the curve after analysing the statistical relationship between unemployment rates and wage inflation in the UK between 1861and 1957.
In this simple example, a reduction in unemployment from 3% to 2% would be consistent with a rise in the inflation rate from 2% to 6%. The Phillips Curve becomes steeper the nearer the unemployment rate approaches zero %.
The Phillips Curve has been influential in developing the mathematical models used by central banks and other forecasting organisations.
Read more on the Phillips Curve
Listen to Tim Harford’s podcast on Phillips – The Indiana Jones of Economics
