Procrustean Art of Backtracking: “Phillips Curve”
For the sake of convenience, we copy the following from somewhere else: The Phillips curve relates the inflation rate ( π ) to the unemployment “rate” ( u ). Basically, there is dimension aberration: the inflation rate has the time dimension (T -1 , or per peiod) while the unemployment rate, a ratio as a matter of fact, does not (T 0 , or at a moment). In order to link the two, we need a “coefficient” with the time dimension, but finding one may not be easy. To tell the truth, a rate (T -1 ) can if ever be bridged to a ratio (T 0 ) with a third variable (T 1 ) rather than a constant coefficient. The same holds true for any type of level as well. For example, a price level at t 1 ( P t1 ) may be connected to another at t 2 ( P t2 ) with the inflation rate per certain period ( π ) times a multiple or a fraction ( n ) of the period; that is, P t2 = P t1 ∙ (1+ n ∙π) , where n is a variable in the time dimension (T 1 ). ...