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On the Death of the Phillips Curve
By William A. Niskanen
Introduction
There is no evidence of a Phillips curve showing a tradeoff between unemployment and inflation. The function for estimating the nonaccelerating inflation rate of unemployment (NAIRU) has been incorrectly formulated. Indeed, the unemployment rate is a positive function of the inflation rate with a lag of a year or two. An alternative formulation of the relation between unemployment and inflation leads to an estimate that the NAIRU is about 3.7 percent and can only be achieved by a sustained inflation rate of zero. Moreover, this relation appears to have been stable for over four decades.
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