The Transition of the Phillips Curve

In this paper, we talk about the transition of the Phillips Curve from before the 1970's to\ud modern times. A. W. first described the Phillips Curve as the inverse relationship\ud between the rate of change of money wage rates and the unemployment rate in the United\ud Kingdom before the 1970???s. This meant as the unemployment rate increased, the rate of\ud change of money wage rates decreased. We statistically test this theory through a scatter\ud diagram and an estimated equation for data obtained for the period of 1948-1957 in the\ud United States. Afterwards, we depict the transition of this relationship to the inverse\ud relation of the inflation rate and the unemployment rate by the work of Paul Samuelson\ud and Robert Solow. This relationship meant as inflation rate increased, unemployment rate\ud decreased. Again, we statistically test this theory through a scatter diagram and an\ud estimated equation, and prove that this relationship, indeed, does exist for the same\ud period of 1948-1957 in the United States. In the 1970???s, the sudden increase in the mark up value of oil by OPEC leaded to the Stagflation which questioned the stability of the Phillips Curve. It was then that the two variables of the natural rate of unemployment and inflation expectations were introduced to the Phillips Curve by Milton Friedman and Edmund Phelps. In the Expectations-Augmented Phillips Curve, the inflation rate is not only dependent on the unemployment rate, but it is also dependent on inflation expectations and the natural rate of unemployment. We statistically test this theory through an estimated equation and further necessary steps, and come to the conclusion that the theory, indeed, is true for the period of 1977-2013 in the United States