Structural change in the US Phillips curve, 1948-2021: the role of power and institutions

By Mark Setterfield, Robert A Blecker

PKES Working Paper 2208

February 2022

This paper provides an institutional-analytical account of changes in the structure of the US Phillips curve (PC) during the post-war period. It does so by restoring conflict and power to the forefront of macro theory and, in particular, the wage- and price-setting behaviour of workers and firms. The resulting account is consistent with the main stylized facts that characterize the evolution of the US PC since 1948: the disappearance and subsequent reappearance of a ‘standard’ PC (relating the level of the inflation rate, not the change in this rate, to the rate of unemployment); and the flattening of the PC since the 1990s.

Keywords: Phillips Curve, inflation, unemployment, natural rate hypothesis, bargaining power, institutions

JEL classification: E12 E24 E25 E31 N12