How does a financial crash affect the Phillips curve?

Abstract: This study investigates if there is a significant Phillips curve correlation and if the tradeoff changed during the financial crisis of 2008 in countries such as Sweden, Austria and Belgium. It tries to find the evidence for a change in the tradeoff using a time series regression model. The study will first go through the different modifications that has been done to the Phillips curve and how the theory has evolved since it was originally theorized. After that the data that was used in the regression is examined and evaluated. The regression on the Phillips curve that follows is done in two ways, first on a Phillips curve with backward-looking inflation expectations and then a regression with anchored inflation expectations. The results are ambiguous since the regression only found significance for a tradeoff in the Phillips curve with the anchored inflation expectations and not for the backward-looking inflation expectations model which is the more conventional model to use. If we follow the model with the anchored expectations we can see that the tradeoff does exist and that it was strengthened by the financial crash of 2008 in Belgium and Austria. In Sweden however, the only results the regression provided is that a significant Phillips curve correlation is present in the economy.