📊 Phillips Curve Calculator
Calculate inflation from unemployment using the Phillips Curve
Typically around 0.5 (default: 0.5)
How to Use This Calculator
Enter Expected Inflation
Input the expected inflation rate as a percentage (e.g., 2.0 for 2%).
Enter Unemployment Rate
Input the actual unemployment rate as a percentage (e.g., 6.0 for 6%).
Enter Natural Unemployment
Input the natural rate of unemployment (NAIRU) as a percentage (e.g., 5.0 for 5%).
Review Results
See the actual inflation rate, unemployment gap, and inflation change based on the Phillips Curve.
Formula
π = πe - α(U - U*)
Where: π = Actual Inflation, πe = Expected Inflation
U = Unemployment Rate, U* = Natural Unemployment, α = Coefficient
Example 1: High Unemployment
Expected Inflation: 2.0%
Unemployment: 7.0%, Natural: 5.0%
Coefficient: 0.5
Actual Inflation = 2.0% - 0.5 × (7.0 - 5.0) = 2.0% - 1.0% = 1.0%
High unemployment reduces inflation below expected
Example 2: Low Unemployment
Expected Inflation: 2.0%
Unemployment: 4.0%, Natural: 5.0%
Coefficient: 0.5
Actual Inflation = 2.0% - 0.5 × (4.0 - 5.0) = 2.0% - (-0.5%) = 2.5%
Low unemployment increases inflation above expected
About Phillips Curve Calculator
The Phillips Curve Calculator calculates the relationship between unemployment and inflation using the Phillips Curve, an economic concept that describes an inverse relationship between unemployment and inflation. The modern Phillips Curve shows that actual inflation depends on expected inflation and the unemployment gap (the difference between actual and natural unemployment).
The Phillips Curve is expressed as: π = π^e - α(U - U*), where π is actual inflation, π^e is expected inflation, U is the unemployment rate, U* is the natural unemployment rate, and α is a coefficient. When unemployment is above the natural rate, inflation falls below expected inflation. When unemployment is below the natural rate, inflation rises above expected inflation.
This calculator is essential for economists, students, policymakers, and anyone studying macroeconomics. It helps understand the unemployment-inflation tradeoff, predict inflation from unemployment data, and analyze monetary policy and economic conditions.
When to Use This Calculator
- Economic Analysis: Understand the relationship between unemployment and inflation
- Inflation Forecasting: Predict inflation from unemployment data
- Policy Evaluation: Assess the impact of unemployment on inflation
- Academic Study: Learn about the Phillips Curve and inflation theory
- Monetary Policy: Understand the unemployment-inflation tradeoff for policy
- Economic Modeling: Model the unemployment-inflation relationship
Why Use Our Calculator?
- ✅ Accurate Calculations: Uses standard Phillips Curve formula
- ✅ Comprehensive: Shows actual inflation, unemployment gap, and inflation change
- ✅ Educational: Helps understand Phillips Curve concept
- ✅ Easy to Use: Simple interface for quick calculations
- ✅ Free Tool: No registration or fees required
- ✅ Flexible: Allows adjustment of coefficient
Understanding the Phillips Curve
The Phillips Curve describes an inverse relationship between unemployment and inflation. When unemployment is high, inflation tends to be low (and vice versa). The modern Phillips Curve incorporates expectations, showing that actual inflation depends on expected inflation and the unemployment gap.
When unemployment is above the natural rate, there's slack in the labor market, reducing wage pressure and inflation. When unemployment is below the natural rate, the labor market is tight, increasing wage pressure and inflation. The coefficient (α) measures how sensitive inflation is to the unemployment gap.
Real-World Applications
Monetary Policy: Central banks use the Phillips Curve to understand the unemployment-inflation tradeoff. If unemployment is above the natural rate, there's room for expansionary policy without causing inflation. If unemployment is below the natural rate, there's inflationary pressure.
Economic Forecasting: If unemployment rises from 5% to 7% and the natural rate is 5%, the Phillips Curve predicts inflation will fall below expected inflation, helping forecast inflation from unemployment data.
Policy Analysis: The Phillips Curve helps policymakers understand the tradeoff between unemployment and inflation. Policies that reduce unemployment may increase inflation, and vice versa, though the relationship may vary over time.
Important Considerations
- The Phillips Curve relationship may vary over time and across countries
- The coefficient (α) measures how sensitive inflation is to unemployment gaps
- Expected inflation plays a crucial role in the modern Phillips Curve
- The relationship may break down during supply shocks or unusual conditions
- Long-run Phillips Curve may be vertical (no tradeoff at natural unemployment)
- Actual inflation may differ from Phillips Curve predictions due to various factors
Frequently Asked Questions
What is the Phillips Curve?
The Phillips Curve describes an inverse relationship between unemployment and inflation. The modern Phillips Curve shows that actual inflation depends on expected inflation and the unemployment gap: π = π^e - α(U - U*).
What is the unemployment-inflation tradeoff?
The unemployment-inflation tradeoff means that lower unemployment is associated with higher inflation, and vice versa. This tradeoff exists in the short run, but may not hold in the long run, where the Phillips Curve may be vertical at the natural unemployment rate.
What is the coefficient (α)?
The coefficient (α) measures how sensitive inflation is to changes in the unemployment gap. A higher coefficient means inflation is more sensitive to unemployment changes. The coefficient typically ranges from 0.3 to 0.7 and varies by country and over time.
Does the Phillips Curve always hold?
The Phillips Curve relationship may vary over time and can break down during supply shocks, structural changes, or unusual economic conditions. The relationship is generally stronger in the short run than the long run, where expectations adjust and the curve may be vertical.
How is the Phillips Curve used in policy?
Policymakers use the Phillips Curve to understand the unemployment-inflation tradeoff and guide monetary policy. If unemployment is above the natural rate, there's room for expansionary policy. If unemployment is below the natural rate, there's inflationary pressure requiring tighter policy.
What is the long-run Phillips Curve?
The long-run Phillips Curve may be vertical at the natural unemployment rate, meaning there's no tradeoff between unemployment and inflation in the long run. Once expectations adjust, inflation returns to expected levels regardless of unemployment, so there's no permanent tradeoff.