What a Puzzle! Why UK Phillips Curves are Unstable

Unstable Phillips’ curves are demonstrated for the UK: every slope in sub-period relationships between nominal wage inflation and the unemployment rate from strongly negative, slightly negative, flat, slightly positive and strongly positive occurs in a time series from 1860 to 2021. These outcomes are predicted by a general econometric model of real-wage growth over that sample expressed in terms of nominal wage inflation, revealing a close match in every sub-period. Thus its `shift’ variables account for the instabilities. Correcting nominal wage inflation for its explanatory variables other than unemployment, its sub-period regressions on unemployment all have the same negative slope revealing the original Phillips’ curves and confirming that in a non-stationary world, the general equation is a more useful way to model the inflation-unemployment relation important to economic policy.