The Philips Curve

[Porkbelly]

The Philips Curve.

An indicator that explained wage increases and inlfation,
but now its just a flat line. Something tells me that some
data has not being captured: migrant, transient labour.

http://www.nationalpost.com/phillips+cur...story.html

https://seekingalpha.com/article/4074363...-inflation

[tanjm]

If I'm not mistaken, the Philips curve is an empirical model. i.e. somebody in the past fitted data to a model and uses this to "predict" things. The problem with an empirical model is that it is just that - "empirical". it does not actually track underlying causes from first principles.

In my opinion, lots of cash floating around, lower unemployment, yet subdued inflation can mean any one or all of the following:
- capital is being exported (i.e. goes elsewhere for investment).
- secular stagnation (google "Larry Summers" and "Secular stagnation").
- capital is now very very efficient. e.g. google is a huge company, but it has relatively few employees. e.g. adding 1 billion of revenue may only take an additional 1 million in wages.

For the last point, basically, you are talking about capital being much more important than labor in economic growth. In economics, capital and labor are part of what economists call factor markets. The relative contribution of each factor may have shifted significantly likely permanently.

[specuvestor]

Philips curve has been as issue since Greenspan and dot com days. It is too simplistic and I agree that different factors and global markets are significant and maybe even bigger impact and not simply unemployment.

[specuvestor]

Coincidentally...

"A fundamental relationship of mainstream economic theory at the heart of the Federal Reserve’s strategy for setting interest rates has been a poor guide for policy makers for at least three decades, according to a study by the Philadelphia Fed’s top-ranking economist.

The paper, co-authored by Philadelphia Fed Director of Research Michael Dotsey, shows that forecasting models based on the so-called Phillips curve, which asserts a link between unemployment and inflation, don’t actually help predict inflation."

https://www.bloomberg.com/news/articles/...tudy-finds