The Phillips curve is an empirical negative relationship between inflation and unemployment.

The
Phillips curve relationship held for U.S. data in the 1960s, but broke down in the 1970s and 1980s.
2.
In the traditional Phillips curve, inflation itself is related to the unemployment rate. In the
expectations-augmented Phillips curve, it is unanticipated inflation (the difference between actual
and expected inflation) that is related to cyclical unemployment (the difference between the
unemployment rate and the natural rate of unemployment). The traditional Phillips curve appears
in the data at times when both expected inflation and the natural rate of unemployment are fixed.
3.
In the early 1960s the rate of inflation was fairly low (about 1% to 2%), and it didnt vary much
from year to year. But supply shocks hit the economy in both the mid- and the late-1970s, causing a rise
in expected inflation and an upward shift in the Phillips curve. Expansionary monetary and fiscal policies
kept inflation high in the 1970s until the Federal Reserve began pursuing contractionary monetary policy
to reduce inflation during 19791982. This moved the economy to a lower Phillips curve, which was
maintained in the 1980s. The instability of the Phillips curve is largely because of higher expected
inflation associated with supply shocks in the 1970s.