Friday, March 13, 2015

The Phillips curve in 3 dimensions, animated

 - by New Deal democrat

Yesterday I wrote that the Phillips curve might best be considered as three-dimensional, where the third axis was commodity prices, and in particular Oil.  A shock to underlying commodity prices would also "shock" the unemployment vs. inflation trade-off, moving the curve along the third dimension.

Thanks to the help of a reader, I am able to show you this animated gif of the Phillips curve.  The X axis is the unemployment rate, the Y axis is YoY headline CPI, and the Z axis is YoY PPI commodity prices.

Since there are many points with the same UNEMPxCPI (x,y) value, the mean PPI for those values was used.  As you can appreciate, the distribution is noisy, so as my correspondent noted, the "data does not suggest a smooth function."

With that introduction, here is the Phillips curve in 3 dimensions as an animated gif;