scholarly journals The Phillips Curve: Back to the '60s?

2016 ◽  
Vol 106 (5) ◽  
pp. 31-34 ◽  
Author(s):  
Olivier Blanchard
Keyword(s):  
Monetary Policy ◽  
Standard Error ◽  
Phillips Curve ◽  
Inflation Expectations ◽  
Low Level ◽  
The Past ◽  
The U.S

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.

scholarly journals Lessons on Monetary Policy from the 1980s

1988 ◽  
Vol 2 (3) ◽  
pp. 51-72 ◽  
Author(s):  
Benjamin M Friedman
Keyword(s):  
Monetary Policy ◽  
Federal Reserve ◽  
Price Stability ◽  
Money Stock ◽  
The Past ◽  
Reserve System ◽  
Past Half ◽  
The U.S ◽  
Half Decade ◽  
Do So

The half-decade running from mid-1982 to mid-1987 was a pretty good era for U.S. monetary policy, as these things go. Even the severe 1981-82 recession served its intended purpose of substantially restoring price stability. At least as judged by the outcomes for the standard objectives of macroeconomic policy, U.S. monetary policy was a distinct success. Economists hoping to say something useful about monetary policy in the 1980s have had a tougher time. The quantitative relationships connecting income and price movements to the growth of familiar monetary aggregates, including especially the M1 measure of the money stock that had been the chief focus of monetary policy during 1979-82, utterly fell apart during this period. It is difficult to escape the conclusion that there is now a conceptual vacuum at the center of the U.S. monetary policymaking process. In the meanwhile, the Federal Reserve System has not ceased operations. Nor should it be inclined to do so, in light of the performance of both income and prices during the past half-decade.

scholarly journals The Flattening of the Phillips Curve: Policy Implications Depend on the Cause

2019 ◽  
pp. 1-7 ◽  
Author(s):  
Filippo Occhino
Keyword(s):  
Monetary Policy ◽  
Structural Changes ◽  
Phillips Curve ◽  
Policy Implications ◽  
The Past ◽  
Different Types ◽  
Historical Relationship

According to the historical relationship known as the Phillips curve, strengthening of the economy is commonly associated with increasing inflation. With inflation having only modestly picked up in the past few years as the economy has become more robust, many believe the Phillips curve relationship has weakened, with the curve becoming flatter. I show that the flattening can be due to very different types of structural changes and that knowing the type of change that has occurred is crucial for choosing the appropriate monetary policy.

Inflation expectations: An overview of modern approaches

2019 ◽  
pp. 54-80 ◽  
Author(s):  
N. A. Ranneva
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Markets ◽  
Rational Expectations ◽  
Phillips Curve ◽  
Time Estimation ◽  
Central Banks ◽  
Inflation Expectations ◽  
Expectation Formation ◽  
Theoretical Approaches

Modern economic theory considers expectations as a key determinant of actual inflation. How agents form those expectations therefore plays a central role in macroeconomic dynamics and policy-making. The understanding of the expectation formation process and the real-time estimation of expectations are especially important for central banks because they need to be sure that longer-term inflation expectations are anchored at the target of inflation, set by the central bank. When expectations are anchored — it is a clear sign that the monetary policy is effective and that markets trust the central bank. However, it is not easy to assess the expected inflation: it is not observable and cannot be directly measured. Central banks can only use the indirect estimates of this variable. For many years the main theoretical framework for modeling and analysis of inflation expectations was Phillips curve with rational expectations which substituted the adaptive expectations. Today many alternative models of expectation formation are available. The article provides a brief overview of the evolution of theoretical approaches to inflation expectation formation and their impact on the monetary policy. Besides, using the experience of the U.S., the article addresses two main ways to gauge inflation expectations empirically — survey-based measures (for different groups of respondents) and measures based on the data from American financial markets. Shortcomings and merits of both approaches are discussed, as well as the importance of highly developed financial markets, which can become the source of more precise information on inflation expectations.

scholarly journals The ECB’s New Monetary Policy Strategy

2021 ◽  
Vol 56 (5) ◽  
pp. 295-298
Author(s):  
Peter Hennecke
Keyword(s):  
Monetary Policy ◽  
Business Cycle ◽  
Inflation Rate ◽  
Phillips Curve ◽  
Inflation Expectations ◽  
Policy Strategy ◽  
Long Period ◽  
Curve Model ◽  
The Business Cycle ◽  
First Time

AbstractThe ECB updated its monetary policy strategy for the first time in 18 years in July 2021. Therein, the ECB announced that it is willing to accept a transitory period of moderate inflation overshoot in its efforts to push inflation upwards after a long period of undershooting its target. This study explores whether such an overshoot can be economically justified employing a simple Phillips curve model. The results point to the conclusion that the average inflation rate over the business cycle consolidated about one percentage point below the ECB’s target rate. A temporary asymmetry of the ECB’s monetary strategy seems therefore justified to realign inflation and inflation expectations with the target rate.

Α Model of Debt Deflation and the Phillips Curve: Implications for Business Cycles and the Balance Sheet Channel of Monetary Policy / Schulden-Deflation und die Phillips-Kurve: Implikationen für Konjunkturzyklen und den Bilanzkanal der Geldpolitik

2000 ◽  
Vol 220 (4) ◽  
Author(s):  
Lutz Arnold
Keyword(s):  
Monetary Policy ◽  
Business Cycles ◽  
Phillips Curve ◽  
Balance Sheet ◽  
New Keynesian ◽  
Inflation Expectations ◽  
Natural Rate ◽  
Net Worth ◽  
Balance Sheet Channel ◽  
Debt Deflation

SummaryNew Keynesian economics stresses the positive link between firms’ net worth, on the one hand, and the equilibrium level of credit granted and aggregate employment, on the other hand. The present paper argues that once money is introduced and adaptive inflation expectations are assumed, an accelerationist Phillips curve emerges: because of debt deflation, an increase in the rate of inflation reduces firms' real debt burden; because of the negative link between real debt and employment, unemployment falls. The natural rate of unemployment is the rate that occurs when inflation is constant. Frisch has proposed modeling business cycles by means of stochastic linear second-order difference equations which display damped oscillations in the absence of stochastic impulses. The New Keynesian model with adaptive expectations expounded here gives rise to business cycles in Frisch’s sense. This can be shown by applying Laidler’s result, derived in a different set-up, that the interaction between an accelerationist Phillips curve and the quantity theory of money yields Frisch-type cycles. Moreover, the model presented sheds some light on the working of the balance sheet channel of monetary policy.

Theoretical Approaches to Inflation Expectation Management Justification in Today’s Russia

2014 ◽  
Vol 2014 (6) ◽  
pp. 35-51
Author(s):  
Ilya Gurov
Keyword(s):  
Economic Environment ◽  
Inflation Expectations ◽  
Economic Agents ◽  
Low Level ◽  
Inflation Expectation ◽  
The Past ◽  
Inflation Forecasts ◽  
Theoretical Approaches ◽  
Expectation Management ◽  
The Subject

Inflation expectations significantly influence economic environment. During the past decades there was high and unstable inflation and systematic excess and mismatch between actual inflation and official forecasts in Russia. At present economic agents have low level of trust in official inflation forecasts. The subject of the research are inflation expectations in Russia. The aim of the research is to justify the possibility of inflation expectation management provision in Russia. The article shows that currently, nowadays inflation expectations are predominantly adaptive in Russia. Nevertheless, inflation reduction and stabilization in 2011-2013 can become the basis for inflation expectations anchor provision and perceived inflation uncertainty minimization.

scholarly journals Twenty Years of Unconventional Monetary Policies

2020 ◽  
Vol 20 (226) ◽  
Author(s):  
Niklas Westelius
Keyword(s):  
Monetary Policy ◽  
Institutional Design ◽  
Policy Framework ◽  
Inflation Expectations ◽  
Financial Policies ◽  
Monetary Policies ◽  
Communication Framework ◽  
The Past ◽  
Bank Of Japan ◽  
Policy Objectives

The Bank of Japan has used unconventional monetary policies to fight deflation and stabilize the financial system since the late 1990s. While the Bank of Japan’s reflation efforts have evolved over time, inflation and inflation expectations have remained stubbornly low. This paper examines the evolution of monetary policy in Japan over the past twenty years, in order to draw relevant lessons and propose ways to strengthen the Bank of Japan’s policy framework. In doing so the analysis focuses on three aspects of monetary policy: objectives and goals; policy strategies; and the communication framework. Moreover, the paper discusses coordination between monetary, fiscal, and financial policies, and how the corresponding institutional design could be strengthened.

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