Editing Phillips curve (section)

===Modern application===
[[File:U.S. Phillips Curve 2000 to 2013.png|thumb|right|U.S. inflation and unemployment 1/2000 to 8/2014]]
Most economists no longer use the Phillips curve in its original form because it was too simplistic.<ref name="hossfeld">Oliver Hossfeld (2010) [http://www.hhl.de/fileadmin/texte/publikationen/forschungspapiere/HOSSFELD_USMONEY_INFERWP_2010-4.pdf "US Money Demand, Monetary Overhang, and Inflation Prediction"] {{Webarchive|url=https://web.archive.org/web/20131113215511/http://www.hhl.de/fileadmin/texte/publikationen/forschungspapiere/HOSSFELD_USMONEY_INFERWP_2010-4.pdf |date=2013-11-13 }} ''International Network for Economic Research'' working paper no. 2010.4</ref> A cursory analysis of US inflation and unemployment data from 1953 to 1992 shows no single curve will fit the data, but there are three rough aggregations—1955–71, 1974–84, and 1985–92—each of which shows a general, downwards slope, but at three very different levels with the shifts occurring abruptly. The data for 1953–54 and 1972–73 do not group easily, and a more formal analysis posits up to five groups/curves over the period.<ref name=chang/>

However, modified forms of the Phillips curve that take inflationary expectations into account remain influential. The theory has several names, with some variation in its details, but all modern versions distinguish between short-run and long-run effects on unemployment. Modern Phillips curve models include both a short-run Phillips Curve and a long-run  Phillips Curve. This is because in the short run, there is generally an inverse relationship between inflation and the unemployment rate; as illustrated in the downward sloping short-run Phillips curve. In the long run, that relationship breaks down and the economy eventually returns to the natural rate of unemployment regardless of the inflation rate.<ref>{{Cite web|url=http://www.apeconreview.com/phillips-curve.html|title=AP Macroeconomics Review: Phillips Curve|last=Jacob|first=Reed|date=2016|website=APEconReview.com}}</ref>

The "short-run Phillips curve" is also called the "expectations-augmented Phillips curve", since it shifts up when inflationary expectations rise, [[Edmund Phelps]] and [[Milton Friedman]] argued. In the long run, this implies that monetary policy cannot affect unemployment, which adjusts back to its "[[natural rate of unemployment|natural rate]]", also called the "[[NAIRU]]".  The popular textbook of [[Olivier Blanchard|Blanchard]] gives a textbook presentation of the expectations-augmented Phillips curve.<ref>{{cite book |last=Blanchard |first=Olivier |title=Macroeconomics |publisher=Prentice Hall |edition=Second |year=2000 |isbn=978-0-13-013306-9 |pages=149–55 |url=https://books.google.com/books?id=Dxu3AAAAIAAJ&pg=PA149 }}</ref> 

An equation like the expectations-augmented Phillips curve also appears in many recent [[New Keynesian economics|New Keynesian]] [[dynamic stochastic general equilibrium]] models. As Keynes mentioned: "A Government has to remember, however, that even if a tax is not prohibited it may be unprofitable, and that a medium, rather than an extreme, imposition will yield the greatest gain".<ref>{{cite book |last1=Keynes |first1=John Maynard |title=Monetary Reform |date=1924 |publisher=Hancourt |location=New York |pages=54–55 |doi=10.1086/318607 }}</ref> In these [[macroeconomic model]]s with [[sticky (economics)|sticky prices]], there is a positive relation between the rate of inflation and the level of demand, and therefore a negative relation between the rate of inflation and the rate of unemployment. This relationship is often called the "New Keynesian Phillips curve".  Like the expectations-augmented Phillips curve, the New Keynesian Phillips curve implies that increased inflation can lower unemployment temporarily, but cannot lower it permanently. Two influential papers that incorporate a New Keynesian Phillips curve are [[Richard Clarida|Clarida]], [[Jordi Galí|Galí]], and [[Mark Gertler (economist)|Gertler]] (1999),<ref>{{cite journal |last=Clarida |first=Richard |author2=Galí, Jordi |author3=Gertler, Mark  |year=1999 |title=The science of monetary policy: a New-Keynesian perspective |journal=Journal of Economic Literature |volume=37 |issue=4 |pages=1661–1707 |doi= 10.1257/jel.37.4.1661|jstor= 2565488|hdl=10230/360 |url=http://repositori.upf.edu/bitstream/10230/360/1/356.pdf |hdl-access=free }}</ref> and [[Olivier Blanchard|Blanchard]] and [[Jordi Galí|Galí]] (2007).<ref>{{cite journal |last=Blanchard |first=Olivier |author2=Galí, Jordi |year=2007 |title=Real Wage Rigidities and the New Keynesian Model |journal=Journal of Money, Credit, and Banking |volume=39 |issue=s1 |pages=35–65 |doi=10.1111/j.1538-4616.2007.00015.x |hdl=1721.1/64018 |url=http://www.nber.org/papers/w11806.pdf }}</ref>