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Price Stability Versus Full Employment: the Phillips Curve Dilemma Reconsidered

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Price Stability Versus Full Employment: the Phillips Curve Dilemma Reconsidered Price Stability versus Full Employment: The Phillips Curve Dilemma Reconsidered Dipl. oec. Johannes A. Schwarzer 15. Mai 2016 Kumulative Dissertation zur Erlangung des akademischen Grades Dr. oec. Eingereicht an der Fakultät Wirtschafts- und Sozialwissenschaften der Universität Hohenheim am 4. Dezember 2015 Institut für Volkswirtschaftslehre (520H) Datum der mündlichen Promotionsleistung (Kolloquium): 23. März 2016 Erstgutachter: Prof. Dr. Harald Hagemann (Universität Hohenheim) Zweitgutachter: Prof. Dr. Hans-Michael Trautwein (Carl von Ossietzky Universität Oldenburg) Vorsitzender der Prüfungskommission: Prof. Dr. Heinz-Peter Spahn (Universität Hohenheim) Dekan der Fakultät Wirtschafts- und Sozialwissenschaften der Universität Hohenheim: Prof. Dr. Dirk Hachmeister Kontakt: [email protected] Price Stability versus Full Employment: The Phillips Curve Dilemma Reconsidered To Amrei Acknowledgements Although each paper included in this thesis features a separate acknowledgements section, many people and organisations helped me in diUerent ways during the whole research process. I would like to take the opportunity and express my gratitude to all those who contributed to this thesis. First and foremost my wife supported me throughout all the years for which I am deeply grateful. The supervisor of my thesis, Harald Hagemann, provided excellent advice and guidance in any stage of this dissertation. He also put me in contact with Robert Solow, who commented on the Samuelson-Solow paper included in this thesis. Harald Hagemann also introduced me to David Laidler, who always had most valuable remarks and who shared many contemporary experiences with me which cannot be found anywhere else. David Laidler also put me in con- tact with Richard Lipsey, Edward Nelson and Grant Reuber. Edward Nelson commented on the paper on Friedman’s view about the “cruel dilemma”. His comments very much improved this paper. Grant Reuber kindly invited me to visit him during my stay in Toronto and to discuss my paper on his Phillips curve contributions with him. The discussion was followed up by exchanging letters and emails. This paper also proVted enormously from comments by Ronald Bodkin and William Scarth. Within this “Canadian connection”, particularly Richard Lipsey stands out. In eUect, there is not one paper which did not proVt from the extensive conversa- tions we had during my stay in Vancouver and from the many email exchanges throughout the years. Indeed, Richard Lipsey might be regarded as the hidden third supervisor of this thesis and I am deeply grateful for his help and comments regarding nearly any paper of mine. Hans-Michael Trautwein kindly took over the job of the second supervisor from Heinz-Peter Spahn. This switch became necessary for administrative reasons and I am very grateful that both potential supervisors made a smooth transition possible. Furthermore, they provided a most helpful exchange of ideas throughout the years either at conferences and seminars or during personal conversations. Since a full list of those who contributed to this dissertation in one way or another would require a paper on its own, I would like to restrict myself to expressing my gratitude towards those who contributed a lot to my scientiVc and also personal progress: Kevin Hoover extended my knowledge about macroeconomics in general and about writing papers in particular in many discussions. Jean-Sébastien Lenfant encouraged me to submit my essays to journals while also providing very helpful advice on how to write good papers and to promote my ideas. The same is true for José Luís Cardoso, Steven Medema, and Perry Mehrling. Richard Arena, Muriel Dal Pont Legrand, Heinz Kurz and Hagen Krämer always had important things to say, be it at conferences or during personal conversations. Manfred Neumann provided very helpful comments on a paper on the German translation of Friedman’s Presidential Address. Sylvie Rivot invited me to present my research in Strasbourg for which I am grateful. James v Forder commented on my paper about Friedman and the “cruel dilemma”. Not only these comments but also his contributions to the Phillips curve debate proved to be enormously helpful for my own research. John Black sent me most valuable comments on the paper about the goal of economic growth within the Phillips curve discussion. Robert Lucas and David B. Gordon shared important personal knowledge and background information regarding the “cruel dilemma” with me, for which I am very grateful. Throughout the years my colleagues provided very helpful discussions (and digressions!) as well as support when it was needed the most. I would like to thank Daniel Aichinger, Julian Christ, Christine Clement, Constanze Dobler, Patricia Hofmann, Felix Geiger, Vadim Kufenko, Arash Molavi Vasséi, Ralf Rukwid, Oliver Sauter, Lukas ScheUknecht, Benjamin Schmidt, San- dra Specht, Christian Philipp Schröder, and Oliver Zwiessler for sharing all those years with me. This dissertation and my published as well as unpublished articles proVted enormously from the support of my colleague Niels Geiger, who went above and beyond the call of duty in any possible respect. Furthermore, our long and fruitful discussions helped me enormously to sort out many issues and to straighten my ideas. Many organisations provided very helpful support throughout the years. The Ph.D. scholar- ship by the Evangelisches Studienwerk Villigst made it possible to focus on the thesis and to attend international conferences. Rudi Häussler, through his Förderpreis, enabled me to discuss my research with Grant Reuber and Richard Lipsey in Canada. The European Society for the History of Economic Thought, the History of Economics Society, and the Keynes-Gesellschaft all provided the possibility to present my research on an international stage and in front of a diverse audience. Last but not least, the publishers and copyright holders of the journal articles and of the diagrams included in this thesis kindly granted permission to include this copyright-protected material in my essays as well as in this thesis free of charge (see the Chapter “Copyright and Permissions” at the end of this thesis) for which I am very grateful. Even though so many people and organisations contributed to this project, I alone, of course, am solely responsible for all views expressed and for all remaining errors in this thesis. Stuttgart, May 2016 vi Contents Preface xv General Outline...................................... xvi Article Overview..................................... xvi Supplementary Notes................................... xx Errata........................................... xx A Note on the Term “Keynesian”............................ xxii 1 General Introduction1 1.1 The Phillips Curve and the History of Economic Thought............1 1.2 Three Times the Phillips Curve..........................4 1.3 From an Adjustment Relation to a Trade-OU Interpretation: The Role of Richard Lipsey........................................7 1.3.1 Lipsey’s Econometric Account of the Phillips Curve..........9 1.3.2 The Theoretical Underpinning of the Phillips Curve.......... 13 1.3.3 Micro versus Macro Relations...................... 25 1.3.4 The 1965 Contribution: The Phillips Curve as a Trade-OU Relation.. 28 1.3.5 Summary................................. 33 2 A.W. Phillips and His Curve: Stabilisation Policies, InWation Expectations and the ‘Menu of Choice’ 37 Abstract.......................................... 37 Acknowledgements.................................... 37 2.1 Introduction.................................... 38 2.2 Phillips’ Theoretical Curve............................ 38 2.3 The Phillips Curve................................. 41 2.4 The Australian Phillips Curve........................... 45 2.5 Phillips’ Inaugural Lecture ‘Employment, InWation and Growth’........ 48 2.6 Phillips and the Monetarist Counter-Revolution................. 51 2.7 Conclusion..................................... 53 References......................................... 55 3 Samuelson and Solow on the Phillips Curve and the “Menu of Choice”: A Retro- spective 61 Abstract.......................................... 61 Acknowledgements.................................... 62 Introduction........................................ 62 3.1 Historical and Theoretical Background...................... 65 3.2 Samuelson and Solow on Cost-Push and Demand-Pull............. 67 vii Contents 3.3 The Role of the Phillips Curve........................... 68 3.4 Friedman vs. Samuelson and Solow on the “Menu of Choice”.......... 74 3.5 Conclusion..................................... 78 References......................................... 80 4 Growth as an Objective of Economic Policy in the Early 1960s: The Role of Aggre- gate Demand 89 Abstract.......................................... 89 Acknowledgements.................................... 89 4.1 Introduction.................................... 90 4.2 Growth as an Objective of Economic Policy and the Role of Stabilisation Policies 91 4.2.1 Growth as a Policy Objective in Times of the Cold War........ 91 4.2.2 The Role of Demand Management and Stabilisation Policies...... 93 4.3 Three DiUerent Views............................... 95 4.3.1 The Keynesian View........................... 95 4.3.2 The Paishian View............................ 97 4.3.3 The Sceptical View and Empirical Evidence............... 99 4.4 Growth and the Phillips Curve.......................... 100 4.5 Conclusion..................................... 102 References........................................
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