Phillips Curve Calculator

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The Traditional model links wage growth to unemployment. The Expectations-Augmented model adds expected inflation and the NAIRU. The New Keynesian model uses the output gap and a forward-looking inflation expectation.
Inflation that workers and firms expected when negotiating wages (pi_e in the Friedman-Phelps equation).
%
The Non-Accelerating Inflation Rate of Unemployment: the level of unemployment consistent with stable inflation.
%
The current observed unemployment rate.
%
The sensitivity of inflation to the unemployment gap. Typical values range from 0.3 to 1.0 in modern estimates.
An exogenous shock to inflation, positive for adverse shocks (oil embargo, import-price surge), negative for favourable shocks.
%
Implied inflation rateNear target
1.5%

The current-period inflation rate predicted by the selected model.

Unemployment gap1pp
Inflation gap (vs expected)-0.5pp
1.5 %
Deflation<0Below target0-1Near target1-3Above target3-6High inflation6+

Implied inflation: 1.50%

  • Unemployment is 1.00 percentage points above the NAIRU, exerting downward pressure on inflation relative to expectations.
  • If the public updates its expectations toward this 1.50% outcome, the short-run curve will shift down next period.
  • An implied inflation of 1.50% is in the range most central banks target.

Next stepUse the unemployment gap and your central bank forward guidance to project whether expectations will drift up or down next period.

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