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The Phillips Curve and Inflation Theory Reconsidered

In: Keynesian Economics and Price Theory

Author

Listed:
  • Masayuki Otaki

    (The University of Tokyo)

Abstract

This chapter extends the fundamental theory described in Chap. 2 by permitting that labor productivity varies in conjunction with the unemployment rate. It is assumed that a higher unemployment rate aggravates future labor productivity because unemployment curtails households’ income for educating their children. Stagnation in labor productivity triggers disinflation disinflation . This is because the unit cost of production becomes expensive relative to an arbitrarily given future price. Thus, there emerges a negative causality between the unemployment rate and the inflation rate even though ad-hoc assumptions concerning price stickiness are excluded.

Suggested Citation

  • Masayuki Otaki, 2015. "The Phillips Curve and Inflation Theory Reconsidered," Advances in Japanese Business and Economics, in: Keynesian Economics and Price Theory, edition 127, chapter 4, pages 53-62, Springer.
    • Handle: RePEc:spr:advchp:978-4-431-55345-8_4
    DOI: 10.1007/978-4-431-55345-8_4
    as

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