Chapter 21, first published in 1961, is one of the most important essays that Phillips ever wrote. It provided the first synthesis of real and monetary phenomena and cycles and growth in a dynamic disequilibrium macroeconomic model, together with a mathematical analysis of the steady state and stability properties of the model. It also provided the initial stimulus which led, via my own work, to the development of a series of continuous time macroeconometric models generating cyclical growth. During the last twenty years, such models have been estimated for most of the leading industrial countries of the world, and they share some of the basic features of the theoretical model developed in chapter 21. Moreover, they have been estimated by continuous time econometric methods whose development was stimulated by chapter 42 (1959).

At the time when Phillips wrote chapter 21, theoretical models of cyclical growth were rather mechanical, with cycles being generated by the multiplier-accelerator mechanism and growth introduced through exogenous trends in demand. There was, clearly, a need for a more integrated model, which incorporated the price mechanism. Several leading economists, including Meade and Robertson had, for some time, been trying to persuade Phillips to introduce the price mechanism into his dynamic models. Chapter 21 was strongly influenced by the ideas of Meade, who had, himself, been working on this problem.