Editing Phillips curve (section)

===Stagflation===
In the 1970s, many countries experienced high levels of both inflation and unemployment also known as [[stagflation]]. Theories based on the Phillips curve suggested that this would not occur, and the curve came under attack from a group of economists headed by [[Milton Friedman]].<ref name="Krugman" /> Friedman argued that the Phillips curve relationship was only a short-run phenomenon. This followed eight years after Samuelson and Solow [1960] wrote "All of our discussion has been phrased in short-run terms, dealing with what might happen in the next few years.  It would be wrong, though, to think that our Figure 2 menu that related obtainable price and unemployment behavior will maintain its same shape in the longer run.  What we do in a policy way during the next few years might cause it to shift in a definite way."<ref name="SamuelsonSolow1960">{{cite journal |title=Analytical Aspects of Anti-Inflation Policy |first1=Paul A. |last1=Samuelson |first2=Robert M. |last2=Solow |journal=[[American Economic Review]] |volume=50 |issue=2 |year=1960 |pages=177–194 |jstor=1815021 }}</ref> As Samuelson and Solow had argued 8 years earlier, Friedman said that in the long run, workers and employers will take inflation into account, resulting in employment contracts that increase pay at rates near anticipated inflation. Unemployment would then begin to rise back to its previous level, but with higher inflation. This implies that over the longer-run there is no trade-off between inflation and unemployment. This is significant because it implies that [[central bank]]s should not set unemployment targets below the natural rate.<ref name=chang/>

More recent research suggests that there is a moderate trade-off between low-levels of inflation and unemployment. Work by [[George Akerlof]], [[William Dickens]], and [[George Perry (American economist)|George Perry]],<ref>{{cite journal |first1=George A. |last1=Akerlof |first2=William T. |last2=Dickens |first3=George L. |last3=Perry |title=Near-Rational Wage and Price Setting and the Long-Run Phillips Curve |journal=Brookings Papers on Economic Activity |volume=2000 |issue=1 |year=2000 |pages=1–60 |doi=10.1353/eca.2000.0001 |citeseerx=10.1.1.457.3874 |s2cid=14610294 }}</ref> implies that if inflation is reduced from two to zero percent, unemployment will be permanently increased by 1.5 percent because workers have a higher tolerance for real wage cuts than nominal ones. For example, a worker will more likely accept a wage increase of two percent when inflation is three percent, than a wage cut of one percent when the inflation rate is zero.