Return of the Old Keynesian Phillips Curve?
Matthew Martin 8/25/2013 12:48:00 PM
Notice I've highlighted the years that were due to the Great Recession, which has actually made the Phillips curve relationship flatter, suggesting smaller changes in wages are associated with bigger changes in unemployment when wage growth is low.
Krugman's data is annual, so I thought it would be interesting to look at the monthly relationship. Here's monthly unemployment with the monthly year-over-year change in wages:
What we see is that in fact the disinflationary/deflationary pressure of the recession did not simply cause us to slide down the Phillips curve during the recession. Instead we've actually spiraled around it, remaining well above the Phillips curve as unemployment was rising, and well below the curve now as unemployment is falling.
And finally, lets compare with the original Phillips curve from AW Phillips