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Liberty Street Economics
5 posts on "Phillips Curve"September 18, 2020
What’s Up with the Phillips Curve?
U.S. inflation used to rise during economic booms, as businesses charged higher prices to cope with increases in wages and other costs. When the economy cooled and joblessness rose, inflation declined. This pattern changed around 1990. Since then, U.S. inflation has been remarkably stable, even though economic activity and unemployment have continued to fluctuate. For example, during the Great Recession unemployment reached 10 percent, but inflation barely dipped below 1 percent. More recently, even with unemployment as low as 3.5 percent, inflation remained stuck under 2 percent. What explains the emergence of this disconnect between inflation and unemployment? This is the question we address in “What’s Up with the Phillips Curve?,” published recently in Brookings Papers on Economic Activity.
Posted by Blog Author at 7:00 AM in DSGE, Inflation, Macroecon, Monetary Policy, Phillips Curve, Unemployment | Permalink | Comments (3)September 23, 2015
How Much Do Inflation Expectations Matter for Inflation Dynamics?
Inflation dynamics are often described by some form of the Phillips curve. Named after A. W. Phillips, the British economist whose study of U.K. wage and unemployment data laid the groundwork, the Phillips curve denotes an inverse relationship between inflation and some measure of economic slack. A much-discussed issue in the literature is how forward-looking this relationship is. In this post, we address this question using a flexible version of the New Keynesian Phillips curve (NKPC) to illustrate the key role that expectations play in inflation dynamics.
Continue reading "How Much Do Inflation Expectations Matter for Inflation Dynamics?" »
Posted by Blog Author at 7:00 AM in DSGE, Expectations, Inflation, Macroecon, Monetary Policy, Phillips Curve, Wages | Permalink | Comments (0)August 26, 2015
Mind the Gap: Assessing Labor Market Slack
Indicators of labor market slack enable economists to judge pressures on wages and prices. Direct measures of slack, however, are not available and must be constructed. Here, we build on our previous work using the employment-to-population (E/P) ratio and develop an updated measure of labor market slack based on the behavior of labor compensation. Our measure indicates that roughly 90 percent of the labor gap that opened up following the recession has been closed.Continue reading "Mind the Gap: Assessing Labor Market Slack" »
Posted by Blog Author at 7:00 AM in Labor Economics, Labor Market, Macroecon, Phillips Curve, Wages | Permalink | Comments (2)July 14, 2014
High Unemployment and Disinflation in the Euro Area Periphery Countries
Thomas Klitgaard and Richard Peck
Economists often model inflation as dependent on inflation expectations and the level of economic slack, with changes in expectations or slack leading to changes in the inflation rate. The global slowdown and the subsequent sovereign debt crisis caused the greatest divergence in unemployment rates among euro area member countries since the monetary union was founded in 1999. The pronounced differences in economic performances of euro area countries since 2008 should have led to significant differences in price behavior. That turned out to be the case, with a strong correlation evident between disinflation and labor market deterioration in euro area countries.
Continue reading "High Unemployment and Disinflation in the Euro Area Periphery Countries" »
Posted by Blog Author at 7:00 AM in Euro Area, Inflation, International Economics, Macroecon, Phillips Curve, Unemployment, Wages | Permalink | Comments (0)June 05, 2013
Drilling Down into Core Inflation: Goods versus Services
M. Henry Linder, Richard Peach, and Robert W. Rich
Among the measures of core inflation used to monitor the inflation outlook, the series excluding food and energy prices is probably the best known and most closely followed by policymakers and the public. While the conventional “ex food and energy” measure is a composite of the price changes of a large number of different products and services, almost all models developed to explain and forecast its behavior do not distinguish between the goods and services categories. Is the distinction important? Here, we highlight the different behavior and determinants of goods inflation and services inflation and suggest, based on preliminary analysis, that we can improve the forecast accuracy of this conventional core inflation measure by combining separate inflation forecasts of the two categories.Continue reading "Drilling Down into Core Inflation: Goods versus Services" »
Posted by Blog Author at 7:00 AM in Forecasting, Macroecon, Monetary Policy, Phillips Curve, Unemployment | Permalink | Comments (3)About the BlogLiberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.
The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.
Liberty Street Economics does not publish new posts during the blackout periods surrounding Federal Open Market Committee meetings.
The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
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