Phillips curve

One of the two optimistic stories goes under the unlovely name of the “nonlinear Phillips curve.”

But the nonlinear Phillips curve explains why inflation might fall with only a small rise in unemployment; it doesn’t do as well in explaining what we’ve actually seen, which is falling inflation without any rise in unemployment at all.

Its most concise expression is the “Phillips curve” formulated in the 1950s by a New Zealand economist, which posits an inverse relationship between inflation and unemployment — that is, higher inflation is linked to lower unemployment and vice versa.

Even though many respected economists recognize that if this relationship exists, it holds only in the very short term, the Phillips curve “has been the foundation of monetary policy for decades,” as Christopher J. Waller, a member of the Fed Board of Governors, observed in a March 31 speech.

The guiding model for this approach is the Phillips Curve — discovered by 1950s economist A.W.