UK Philips curves and monetary policy

Abstract

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 û how policy-maker attitudes on the Phillips curve have evolved since the 1950s û 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 favorable unemployment-inflation tradeoff might indicate not something to be exploited but instead only policy-makers'' correctly acknowledging that no tradeoff exists