Anticipated Inflation and Unanticipated Price Change: A Test of the Price-Specie Flow Theory and the Phillips Curve

The Phillips curve is widely accepted as the maintained theory of inflation. In the standard version of the theory current inflation depends on some measure of anticipated inflation and on the deviation of current output from full-employment output. Most recent studies of inflation report the continuing search for variables that increase the accuracy with which the theory predicts or forecasts. Recent surveys by Laidler and Parkin [15] and by Gordon [11] summarize these developments. An entirely different direction has been taken by Lucas [17, 19, 20] and Phelps [25]. These authors seek to provide a firm micro-foundation for the relation.