Reconsidering the long-run relationship between inflation and unemployment

In this paper a brief history of the Phillips curve from Fisher (1973 [1926]) to the FriedmanPhelps natural rate hypothesis is sketched. Empirical evidence from France, Germany, the United Kingdom and the United States during the latter half of the 20th century in support of a positive long-run relationship between inflation and unemployment is presented. In order to reconcile the predominant theoretical view with the data, two arguments are outlined, both of which build on unintended consequences of monetary expansion: 1.) redistributional effects, and 2.) business cycle fluctuations. Both arguments hinge on further political interventions in response to these consequences.