Phillips Curve

Phillips Curve

It is a graphic curve which advocates a relationship between inflation and unemployment in an economy. As per the curve there is a 'trade off between inflation and unemployment, an inverse relationship between them. The curve suggests that lower the inflation, higher the unemployment and higher the inflation, lower the unemployment. 28 During the 1960s, this idea was among the most important theories of the modern economists. This concept is known after the economists who developed it-Alban William Housego Phillips. Bill Phillips (popular name) was an electrical engineer from New Zealand and was an economist at the London School of Economics when propounded the idea. In 'The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957' (published in Economica in 1958), he provided empirical evidence to support his ideas.

By the early 1960s, an economic wisdom emerged around the world that by following a certain kind of monetary policy, unemployment could be checked forever and at the cost of a slightly higher inflation, unemployment could be reduced permanently. The central banks of the developed world started framing the required kind of monetary policies mixing the trade-off between inflation and Hunemployment. The idea became popular among the developing economies too by the late 1960s, though they were a bit confused, as most of them