The ‘Place of the Phillips Curve’ in Macroeconometric Models : The Case of the Fed’s Macroeconometric Model (1966–1980s)

The paper investigates how the Fed-MIT-Penn model incorporated the Phillips curve within its larger system of equations, after Milton Friedman's Presidential Address. Forder (2014) reconstructs the history of the Phillips curve's parabola arguing that the standard narrative is a myth; a myth he demolished step by step by looking at an extensive academic and non-academic literature. However, he pays little attention to the macroeconometrics literature both because macroeconometrics models were “works in progress”, therefore inferring “what [was] generally believed” might be difficult (2014: 20-21); and because they were short run forecasting models and thus little affected by the debate on the vertical Phillips curve.My paper integrates Forder's narrative investigating how macroeconometric models approached the Phillips curve issue since the late 1960s to the 1980s. I concentrate on the Federal Reserve Board's first macroeconometric model built by economists from the Fed Division of Research in Statistics under Frank de Leeuw supervision, in collaboration with academic economists under the directorship of Franco Modigliani and Albert Ando. Because the result of close interactions between academic economists and practitioners the model should have been open to academic debates, trying to combine theoretical achievements with policy analysis and forecasting. The evolution of this model over the 1970s, and particularly of the wage and price block, appears emblematic of the relationships between the development of macroeconomic theory and its application