A general equilibrium analysis in the Phillips space |
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Authors: | Pui Chi Ip |
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Affiliation: | Macquarie University, Australia |
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Abstract: | The relationship between inflation and unemployment is analyzed within a general equilibrium framework in which the equilibrium rates of inflation and unemployment are solved simultaneously. The locus of points in the Phillips (inflation-unemployment) space depends on the dynamic adjustment mechanism postulated and the value of the behavioral parameters of the model. Changes in fiscal and monetary policy may lead to clockwise or counter-clockwise loops or spirals and to movement of the system in any direction in the Phillips space. The traditional inverse relationship between inflation and unemployment represents only one of a number of possibilities. |
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