Macro part 1a explications VOLCKER PHILIPS CURVE
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Auteur Author: SPITZER2001
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Mis en ligne Uploaded: 20/02/2025 - 05:36:43
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Shortlink : http://ti-pla.net/a4512090
Type : Classeur 3.0.1
Page(s) : 1
Taille Size: 4.45 Ko KB
Mis en ligne Uploaded: 20/02/2025 - 05:36:43
Uploadeur Uploader: SPITZER2001 (Profil)
Téléchargements Downloads: 2
Visibilité Visibility: Archive publique
Shortlink : http://ti-pla.net/a4512090
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Fichier Nspire généré sur TI-Planet.org.
Compatible OS 3.0 et ultérieurs.
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The Volcker Disinflation Period (1980s Present) The "Volcker Disinflation" period refers to a pivotal shift in U.S. monetary policy initiated by Paul Volcker, Chairman of the Federal Reserve from 1979 to 1987. During the 1970s, the U.S. suffered from stagflationhigh inflation combined with stagnant economic growthcaused by oil shocks, loose monetary policy, and wage-price spirals. By 1979, inflation exceeded 13%, leading to Volckers appointment to restore price stability. Volcker implemented radical monetary tightening by raising interest rates to nearly 20%. His goal was to break inflation expectations and end the wage-price spiral by making borrowing expensive, reducing the money supply, and convincing businesses and workers that inflation would no longer be tolerated. This approach aimed to reset long-term inflation expectations. In the short term, this policy caused a severe recession: unemployment peaked at 10.8% in 1982, and economic growth slowed as borrowing and spending collapsed. Despite political backlash, Volcker maintained high interest rates until inflation fell to 3% by 1983. Long-term, Volckers actions changed inflation expectations permanently. By establishing that the Federal Reserve would consistently fight inflation, he ended the cycle of high wages and prices, leading to a disinflationary trend that lasted for 40 years. Central banks worldwide adopted inflation-targeting, ensuring low and stable inflation. Volckers legacy is a period of economic stability and growth, characterized by predictable monetary policy, low inflation volatility, and steady economic expansion. His strategy of prioritizing inflation control over short-term growth reshaped modern central banking, influencing economic policy for decades. The Phillips Curve: Simple Explanation The Phillips Curve shows the relationship between inflation (how fast prices are rising) and unemployment (how many people are out of work). It helps us understand how changes in inflation affect jobs and the economy. There are two versions: Short-Run Phillips Curve (SRPC) Shows a temporary trade-off between inflation and unemployment. Long-Run Phillips Curve (LRPC) Shows that in the long run, unemployment is not affected by inflation. 1. Short-Run Phillips Curve (SRPC): Temporary Trade-Off In the short run, the SRPC slopes down because there is a trade-off between inflation and unemployment: Higher inflation Lower unemployment (companies hire more because they can sell products at higher prices). Lower inflation Higher unemployment (companies sell less, so they hire fewer people). Example: If prices rise unexpectedly (higher inflation), companies make more money and hire more workers. This causes unemployment to drop (move left along the SRPC). But This Is Temporary because: Workers eventually realize that higher prices are eating up their wage increases. They demand higher wages to keep up with rising prices. Companies costs go up, and they hire fewer people. Unemployment goes back up to its normal level. 2. Long-Run Phillips Curve (LRPC): No Trade-Off in the Long Run In the long run, the LRPC is a vertical line at the natural rate of unemployment (u). This shows that unemployment always returns to its natural rate, no matter what inflation is. Why? Because wages and prices fully adjust over time. Workers and businesses learn to expect inflation and plan for it. This means inflation has no long-term effect on unemployment. Example: If the government tries to reduce unemployment by increasing inflation, it only works in the short run. Eventually, people expect higher prices, demand higher wages, and unemployment returns to normal (u). The only difference is that prices are now higher (higher inflation). 3. What Happens When Inflation Goes Up? Scenario 1: People Do Not Expect Higher Inflation Short-term effect: If prices go up unexpectedly (higher inflation), companies hire more because they can sell at higher prices. Unemployment drops temporarily. Long-term effect: Eventually, workers ask for higher wages to match inflation. Costs go up, so companies hire fewer people. Unemployment returns to the natural rate (u), and inflation goes back to normal. Nothing changes in the long run because people didnt change their inflation expectations. Scenario 2: People Expect Inflation to Stay High Short-term effect: Prices go up, and companies hire more. Unemployment drops temporarily. Long-term effect: If people expect high inflation to continue, they demand higher wages right away. This causes a wage-price spiral: Higher wages Higher costs for companies Higher prices Even higher wages. Inflation keeps rising, and unemployment returns to the natural rate (u). The economy ends up with higher inflation but the same unemployment as before. This happens because people adjusted their inflation expectations. 4. Why Is This Important? If people trust the central bank (like the Federal Reserve), they believe inflation will stay low. I
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>>
Compatible OS 3.0 et ultérieurs.
<<
The Volcker Disinflation Period (1980s Present) The "Volcker Disinflation" period refers to a pivotal shift in U.S. monetary policy initiated by Paul Volcker, Chairman of the Federal Reserve from 1979 to 1987. During the 1970s, the U.S. suffered from stagflationhigh inflation combined with stagnant economic growthcaused by oil shocks, loose monetary policy, and wage-price spirals. By 1979, inflation exceeded 13%, leading to Volckers appointment to restore price stability. Volcker implemented radical monetary tightening by raising interest rates to nearly 20%. His goal was to break inflation expectations and end the wage-price spiral by making borrowing expensive, reducing the money supply, and convincing businesses and workers that inflation would no longer be tolerated. This approach aimed to reset long-term inflation expectations. In the short term, this policy caused a severe recession: unemployment peaked at 10.8% in 1982, and economic growth slowed as borrowing and spending collapsed. Despite political backlash, Volcker maintained high interest rates until inflation fell to 3% by 1983. Long-term, Volckers actions changed inflation expectations permanently. By establishing that the Federal Reserve would consistently fight inflation, he ended the cycle of high wages and prices, leading to a disinflationary trend that lasted for 40 years. Central banks worldwide adopted inflation-targeting, ensuring low and stable inflation. Volckers legacy is a period of economic stability and growth, characterized by predictable monetary policy, low inflation volatility, and steady economic expansion. His strategy of prioritizing inflation control over short-term growth reshaped modern central banking, influencing economic policy for decades. The Phillips Curve: Simple Explanation The Phillips Curve shows the relationship between inflation (how fast prices are rising) and unemployment (how many people are out of work). It helps us understand how changes in inflation affect jobs and the economy. There are two versions: Short-Run Phillips Curve (SRPC) Shows a temporary trade-off between inflation and unemployment. Long-Run Phillips Curve (LRPC) Shows that in the long run, unemployment is not affected by inflation. 1. Short-Run Phillips Curve (SRPC): Temporary Trade-Off In the short run, the SRPC slopes down because there is a trade-off between inflation and unemployment: Higher inflation Lower unemployment (companies hire more because they can sell products at higher prices). Lower inflation Higher unemployment (companies sell less, so they hire fewer people). Example: If prices rise unexpectedly (higher inflation), companies make more money and hire more workers. This causes unemployment to drop (move left along the SRPC). But This Is Temporary because: Workers eventually realize that higher prices are eating up their wage increases. They demand higher wages to keep up with rising prices. Companies costs go up, and they hire fewer people. Unemployment goes back up to its normal level. 2. Long-Run Phillips Curve (LRPC): No Trade-Off in the Long Run In the long run, the LRPC is a vertical line at the natural rate of unemployment (u). This shows that unemployment always returns to its natural rate, no matter what inflation is. Why? Because wages and prices fully adjust over time. Workers and businesses learn to expect inflation and plan for it. This means inflation has no long-term effect on unemployment. Example: If the government tries to reduce unemployment by increasing inflation, it only works in the short run. Eventually, people expect higher prices, demand higher wages, and unemployment returns to normal (u). The only difference is that prices are now higher (higher inflation). 3. What Happens When Inflation Goes Up? Scenario 1: People Do Not Expect Higher Inflation Short-term effect: If prices go up unexpectedly (higher inflation), companies hire more because they can sell at higher prices. Unemployment drops temporarily. Long-term effect: Eventually, workers ask for higher wages to match inflation. Costs go up, so companies hire fewer people. Unemployment returns to the natural rate (u), and inflation goes back to normal. Nothing changes in the long run because people didnt change their inflation expectations. Scenario 2: People Expect Inflation to Stay High Short-term effect: Prices go up, and companies hire more. Unemployment drops temporarily. Long-term effect: If people expect high inflation to continue, they demand higher wages right away. This causes a wage-price spiral: Higher wages Higher costs for companies Higher prices Even higher wages. Inflation keeps rising, and unemployment returns to the natural rate (u). The economy ends up with higher inflation but the same unemployment as before. This happens because people adjusted their inflation expectations. 4. Why Is This Important? If people trust the central bank (like the Federal Reserve), they believe inflation will stay low. I
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