On the Verticality of the “Phillips Curve”….

Original & fruitful insights from my brilliant young friend, Adrian Ravier:

“Don Bellante & Roger W. Garrison (1988) compared 2 alternative approaches
to monetary dynamics: those based on a vertical long-run Phillips Curve & those
derived from analysis of Hayekian triangles. The conclusion the authors reached is
that the only factor differentiating the two models is the “process” whereby the
initial cause is converted into the final “neutral” effect. This article refutes that
conclusion. To do so it suffices to demonstrate that the long-term effect of
monetary policy is never neutral. While it is true that after the boom-bust cycle the
economy returns to the natural rate of unemployment, the crucial point is that the
‘natural rate’ at the end of the cycle is quite different from the one evident at the
start. This requires an ‘Austrian’ Phillips Curve with a positive slope.”

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