The Formation And Evolution Of Phillips Curve

Since2008, the financial crisis broke out, the unemployment rate only to rise,more and more countries took loose monetary policies to ease the countries’economy, promote the economic growth, inhibit the growth of unemployment rate.However, Europe、 the U.S.、 Japan’s economy is still not much progress, therecame to serious inflation. Our country also emerge this phenomenon, recent years,prices of agricultural products rose rapidly, the imbalance between departments alsorevealed obviously, Even the existence of the phenomenon of rising wages, but alsoundoubtedly contributed to the wage-price spiral-inflation. Inflation,unemployment coexist, How to improve the domestic and international economicenvironment is essential. This makes me think about the Phillips curve which is usedto measure inflation and unemployment. This article introduce the Phillips curve’sgenerate and its evolution briefly, so that we can be able to find out which kind ofPhillips curve is suit for current economy, government can use it to regulate theeconomy and improve our living environment.This paper is divided into five parts. The introduction describes the structure ofthe research background and significance of the topic, literature review and article.The literature review section of this article briefly introduced the representationtheory of some schools, and also introduced several scholars who used data toanalysis the Phillips curve in China, Phillips curve adapt to the different periods ofthe economic environment, describe its characteristics and the corresponding form.The second part of this article is to introduce the formation of the Phillips curve.This part is mainly introduced two representative figures, Phillips and Lipsey.Phillips is the first people who proposed that there is a certain relationship betweenthe unemployment rate and change in money wage rate. Though his theory had certain problems, his achievement must be admitted. Lipsey further revise andimprove Phillips theory, his excessive demand theory and data analysis made therelationship between the unemployment rate and the change in money wage ratemore clearly. Specifically, When labor demand exceeds the supply, wage willincrease, and demand, in terms of supply increase the faster, the faster the wage rateincrease, on the contrary, demand, in terms of supply increase the slower, the lowerwage rate increase, so he believes that wage movements caused by the imbalance inthe labor market.The third part of this article mainly told us the evolution of the Phillips curve.This part not exampled all of the scholar’s theory but introduced several scholarsPhillips curve. Samuelson and Solow has made a huge contribution to improve thePhillips curve, they first mentioned the relationship between unemployment rate andinflation rate, though their analysis didn’t that thorough, contribution to latter scholarfurther studied the Phillips curve and government took measures; Representative ofthe monetarist Milton Friedman published his articles <inflation andunemployment>, he mentioned that he will use the adaptive expectations and thenatural rate of unemployment as a tool to analyze the supply, then divide the Phillipscurve into in the long run and in the short run, friedman argues that the relationshipbetween unemployment and inflation rates in the short term are alternative, while inthe long run, the unemployment rate is always kept at the level of the natural rate ofunemployment, it did not change, so in the short run we used high unemploymentrate to reduce the inflation rate is useful, but in the long run, it did not work. Themonetarist divided Phillips Curve into long-term and short-term, and pointed out thatin the long-term, government take measures to control the unemployment rate is notwork; The rational expectation school further negative the Phillips curve, Theybelieved that not only the long-term, but in the short-term, shift in the relationshipbetween the unemployment rate and the inflation rate was still not exist. Becauseman is a rational one, they argued that whenever government took measures, it isinvalid; in the mid-1980s, the new Keynesian rose. Their theory is constructive, New Keynesian viewed that the natural rate of unemployment is a balanced level, Thisbalanced level had two characteristics: on the one hand, Supply and demand changesrandomly; on the other hand, Market participants’ information Inadequate. Theyproposed the forward-looking Phillips curve, the hybrid Phillips curve, stickyinformation Phillips curve and so on. After this many scholars began to collectnational information, to test the existence of the new Keynesian Phillips curve.The fourth part introduced Chinese scholars researched on Phillips curve. Ourstudy mainly tested the existence of Phillips curve and the model that is suitable forthe economic situation of our country, for example, Zhao Bo and Yong Jiasheng’sarticle which is about the applicability of the Phillips curve; Li Zinai discussed theexistence of the expected augmented Phillips curve. Of course, there are also somescholars who analyze the shape of the Phillips curve, such as Pang Mingchuan.Through his research on the long-term Phillips curve, he used the famous "islandtheory" to explain the short-run Phillips curve staggered relationship; Ring-shapedcurve and made long-term Phillips curve is irregular cycle; Finally, he pointed outthat the short-run Phillips curve and the long-run Phillips curve is a complementaryrelationship. Introduce this mainly in order to know whether China exist Phillipscurve or not after Reform and opening up, and whether this curve can helped ourgovernment to solve the problem about unemployment rate and inflation rate. Thefinal section summarized the full text. Expressed the hope that China’s emphasis onthe Phillips curve, take the appropriate measures to make our country has its ownPhillips, and more accurate.