The Phillips Curve: Back to the '60s?
American Economic Review · 2016 · Volume 106 · Issue 5
Abstract
This paper reexamines the behavior of inflation and unemployment and reaches four conclusions: 1) The U.S. Phillips curve is alive and well (at least as well as in the past). 2) Inflation expectations however have become steadily more anchored. 3) The slope of the curve has substantially declined. But the decline dates back to the 1980s rather than to the crisis. 4) The standard error of the residual in the relation is large, especially in comparison to the low level of inflation. Each of the four conclusions presents challenges for the conduct of monetary policy.
Keywords
Macroeconomics: Production, Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital, Aggregate Labor Productivity, Price Level, Inflation, Deflation, Monetary Policy, Studies of Particular Policy Episodes
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