Re: Interest Rates and inflation

["Alan G. Isaac" <aisaac@xxxxxxxxxxxx>]

On Mon, 18 Dec 2000, John O'Donnell wrote:
> Alan, that's a crock! The original Phillip's curve
> supposedly depicts a relationship between inflation and
> unemployment; all your alleged "standard" curve is is a
> straw being grabbed at by those economists who are at least
> willing to acknowledge that the original is nothing but
> coincidence.

Which original Phillips curve do you have in mind?
Even Phillips acknowledged that the curve could
be shifted by expectations in an inflationary
environment, but Phillips did not produce his curve
in such an environment.  And if you think that
my claim that the relationship is ``standard'' is
``a crock'', why don't you take a look at the
JEP symposium I referenced.  I am merely referencing
the literature, not promoting a formulation.
As I said, the standard formulation relates changes
in inflation to the unemployment rate.
While this may or may not be a helpful thing to do
when trying to understand the economy---it has not
worked out so well in Europe, for example---it has
been a rather robust empirical relationship in the US.
(See, e.g., Gordon's article in the symposium.)

Alan Isaac