Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Capitolo 12
Offerta Aggregata
e Inflazione
©EGEA 2006
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.01
Phillips curves: The UK, 1888-1975 and
a 16-country average, 1921-1973*
©EGEA 2006
*Excluding 1939-1949
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Phillips curve and aggregate supply
©EGEA 2006
Fig. 12.02
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.02
Inflation
Phillips curve
A
B
The tradeoff: reducing
inflation from the high
level at A to the lower
inflation at B comes at
a cost in an increase in
unemployment.
Unemployment
(a) Phillips curve
©EGEA 2006
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.02
Phillips curve
Inflation
     b  U  U 
Phillips curve in point-slope form

U
(a) Phillips curve
©EGEA 2006
Unemployment
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.02
Recall Okun’s Law
Inflation
     b  U  U 
Phillips curve in point-slope form
U  U   g  Y  Y 

Okun's law in point-slope form
U
(a) Phillips curve
©EGEA 2006
Unemployment
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.02
Phillips curve + Okun’s law = Aggregate Supply
Inflation
     b  U  U 
Phillips curve in point-slope form
U  U   g  Y  Y 

Okun's law in point-slope form
     b  g  Y  Y 
U
(a) Phillips curve
©EGEA 2006
Unemployment
Aggregate supply curve
Note: the product of two negative slopes
became a positive slope!
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.02
     b  g  Y  Y 
Inflation
Inflation
Aggregate supply curve


U
(a) Phillips curve
©EGEA 2006
Unemployment
Y Output
(b) Aggregate supply
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.03
Output gaps and unemployment in Germany
4
2.0
3
1.5
Output gap (%)
2
1.0
1
0.5
0
0.0
-1
-0.5
-2
-1.0
-3
-4
-1.5
-5
-2.0
1966 1970 1974 1978 1982 1986 1990 1994 1998 2002
Output gap
©EGEA 2006
Unemployment gap
Unemployment gap (%)
(1966-2004)
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Okun’s Law
©EGEA 2006
Fig. 12.04
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.04
Use the point-slope formula for a straight line
Unemployment
U  U  g  Y  Y 
unemployment
gap
U
output gap
U,Y 
g
point
slope
Y
©EGEA 2006
Output
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Check:
U  U  g  Y  Y 
Unemployment
unemployment
gap
output gap
U  U   g  Y  Y 
00
it checks!
U
Y
©EGEA 2006
Fig. 12.04
Output
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
The long run
©EGEA 2006
Fig. 12.05
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.05
Inflation
Inflation
The long run
U
(a) Phillips curve
©EGEA 2006
Unemployment
Y
Output
(b) Aggregate supply
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.06
Phillips curves: Recent experience
Euroland and the UK
Euroland (1970-2004)
UK (1960-2004)
Euroland (1970-2004)
UK (1960-2004)
16
25
1974
1975
14
1980
20
10
Inflation (%)
Inflation (%)
12
8
6
15
10
1990
1970
1990
4
1994
5
1986
2
2004
1961
0
2004
0
0
2
4
6
8
Unemployment (%)
©EGEA 2006
10
12
0
2
4
6
8
Unemployment (%)
10
12
14
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Table 12.01
Wage share of value added by country and
selected industries, 2001 (%)
Total
economy
Manufacturing
Chemicals
Basic metal
industries
Wholesale/
retail trade
Belgium
56.6
64.5
53.9
78.3
56.7
Czech Republica
50.1
54.6
46.0
60.0
43.6
Germanya
58.2
74.1
69.0
75.3
63.9
Denmark
60.1
64.5
40.4
54.1
67.9
Spain
53.1
67.3
59.7
73.3
44.5
Italy
43.7
54.6
51.9
61.6
32.6
Japan
52.6
56.1
36.3
60.9
60.2
Netherlands
56.0
59.9
45.9
78.4
60.0
Polanda
49.8
61.0
n.a.
n.a.
26.1
United States
58.7
66.0
49.5
70.6
55.6
a
2000
Source: OECD, National Accounts, Volume II
©EGEA 2006
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.07
Augmented Phillips and aggregate supply curves
©EGEA 2006
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.07
Augmented Phillips and aggregate supply curves
Inflation
Inflation
Core inflation and s=0
B
A

C
U
(a) Phillips curve
©EGEA 2006
Unemployment
AS
B

A
C
Y
Output
(b) Aggregate supply
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Table 12.02
Variability of inflation, unemployment and
imported commodity prices in Britain, 1888-2003
1990-2003
1969-82
1888-1965
Inflation
0.68
0.44
2.29
Unemployment
0.26
0.49
0.92
Real commodity prices
0.10
0.20
0.17
©EGEA 2006
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
From the short to the long run
©EGEA 2006
Fig. 12.08
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.08
Inflation equals core inflation, no supply shock.
Inflation
Long run AS
Inflation
Long run
A
1
U
(a) Phillips curve
©EGEA 2006
Short run
Phillips
curve
Unemployment
Short
run
AS
1
A
Y
Output
(b) Aggregate supply
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.08
Short-run trade-off between u and 
Long run AS
Inflation
Inflation
Long run
2
B
1
A
U
(a) Phillips curve
©EGEA 2006
Short run
Phillips
curve
Unemployment
2
1
B
A
Y
Short
run
AS
Output
(b) Aggregate supply
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.08
Not a permanent trade-off, at B inflation is not
equal to core inflation. Core inflation will adjust.
Long run AS
Inflation
Inflation
Long run
2
B
1
A
U
(a) Phillips curve
©EGEA 2006
Short run
Phillips
curve
Unemployment
2
1
B
A
Y
Short
run
AS
Output
(b) Aggregate supply
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.08
As core inflation catches up with experience,
shifts occur in the Phillips curve and AS.
2
Long run AS
Inflation
Inflation
Long run
Z
B
1
A
U
(a) Phillips curve
©EGEA 2006
Short run
Phillips
curves
Unemployment
2
Z
1
A
Y
B
Short
run
AS
Output
(b) Aggregate supply
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.08
Boom from A to B, followed by a recession
(a move along “invisible” AD curve through B)
Long run AS
Inflation
Inflation
Long run
C
2
Z
B
1
A
U
(a) Phillips curve
©EGEA 2006
Short run
Phillips
curves
Unemployment
C
2
Z
1
A
Y
B
Short
run
AS
Output
(b) Aggregate supply
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 12.09
Oil shocks and the DM, 1965-2003
2,500
3.5
2,000
2.5
1,500
2.0
1.5
1,000
1.0
500
0.5
0
0.0
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002
Oil_price ($)
©EGEA 2006
Oil_price (DM)
Exchange rate ($/DM)
Exchange rate index (1960=1)
Oil price indices (1960=100)
3.0