DP2292 UK Phillips Curves and Monetary Policy

Author(s):	Andrew Haldane, Danny Quah
Publication Date:	November 1999
Keyword(s):	Beliefs, Inflation, Natural Rate Hypothesis, Stability
JEL(s):	C22, C23, E31, E32
Programme Areas:	International Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=2292

This paper documents some stylized facts on evolving UK Phillips curves, and shows how these differ from their US versions. We interpret UK Phillips curve dynamics in a positive theory of monetary policy - how policy-maker attitudes on the Phillips curve have evolved since the 1950s - rather than, more traditionally, as interaction between exogenous demand and supply disturbances. Combining this framework with reasoned conjectures on how policy-makers' beliefs have changed helps explain some features of the evolving UK Phillips curve. We suggest that correlations suggesting an extreme favourable unemployment-inflation tradeoff might indicate not something to be exploited but instead only policy-makers' correctly acknowledging that no tradeoff exists.