Phillips Loops, Economic Relaxation, and Inflation Dynamics

We show how the dynamics of inflation as represented by the Phillips curve follow from a response formalism suggested by Phillips and motivated by the Keynesian notion that it takes time for an economy to respond to an economic shock. The resulting expressions for the Phillips curve are isomorphic to those of anelasticity—a result that provides a straightforward and parsimonious approach to macroeconomic-model construction. Our approach unifies forms of the Phillips curve that are used to account for time dependence of the Phillips curve, expands the possible microeconomic explanations of this time dependence, and broadens the reach of this formalism in economics.