Phillips Curve and the Equilibrium Rate of Unemployment

A time-varying Phillips curve was estimated as a means to examine the changing nature of the negative relationship between wage inflation and the unemployment rate in Australia. The implied equilibrium unemployment rate was generated and the analysis showed the important role played by variations in the slope of the Phillips curve (and thus in real wage rigidity) in changing the equilibrium unemployment rate. The deviations of actuals from the estimated equilibrium unemployment rates also performed well as measures of inflationary pressures.