Did the Federal Reserve Break the Phillips Curve? Theory and Evidence of Anchoring Inflation Expectations

2020 ◽  
Author(s):  
Brent Bundick ◽  
Andrew Smith
Keyword(s):  
Federal Reserve ◽  
Phillips Curve ◽  
Inflation Expectations ◽  
Curve Theory

scholarly journals Movement of Inflation and New Keynesian Phillips Curve in ASEAN

Economies ◽  
2021 ◽  
Vol 9 (1) ◽  
pp. 34
Author(s):  
Adhitya Wardhono ◽  
M. Abd. Nasir ◽  
Ciplis Gema Qori’ah ◽  
Yulia Indrawati
Keyword(s):  
Inflation Rate ◽  
Phillips Curve ◽  
New Keynesian ◽  
Inflation Expectations ◽  
New Keynesian Phillips Curve ◽  
Method Of Moment ◽  
Inflation Model ◽  
Wage Inflation ◽  
Generalized Method Of Moment ◽  
Forward Looking

The development of the theory of dynamic inflation begins by linking wage inflation and unemployment. In further developments, factor of expectation is classified into inflation model. The study used inflation data is important for ASEAN, because ASEAN is one of the strengths of the international economy. This study analyzes the dynamics of inflation in the ASEAN using framework the New-Keynesian Phillips Curve (NKPC) model. The data used is the quarterly panel data from 5 ASEAN members in the period 2005.QI–2018.QIV. The study of this dynamic inflation applies quarter to quarter inflation data, meaning that the inflation rate is the percentage change in the general price of the current quarter compared to last quarter general price divided by the last quarter. The empirical results are estimated by using the Generalized Method of Moment (GMM), both of the system and first different indicates that the pattern formation of inflation expectations are backward-looking and forward-looking. In addition, the estimated NKPC models show the backward-looking behavior is more dominant than the forward looking. Changes in inflation are not entirely influenced by expectations of inflation in each country. Changes in inflation are also influenced by the output gap, changes in money supply, and exchange rate. Based on the findings of this study, it can be concluded that the NKPC models can explain the dynamics of inflation in each country in the ASEAN region.

scholarly journals The Formation of Expectations, Inflation, and the Phillips Curve

2018 ◽  
Vol 56 (4) ◽  
pp. 1447-1491 ◽  
Author(s):  
Olivier Coibion ◽  
Yuriy Gorodnichenko ◽  
Rupal Kamdar
Keyword(s):  
Survey Data ◽  
Rational Expectations ◽  
Phillips Curve ◽  
Rational Expectation ◽  
New Keynesian ◽  
Inflation Expectations ◽  
Full Information ◽  
Macroeconomic Modeling ◽  
Expectations Formation

This paper argues for a careful (re)consideration of the expectations formation process and a more systematic inclusion of real-time expectations through survey data in macroeconomic analyses. While the rational expectations revolution has allowed for great leaps in macroeconomic modeling, the surveyed empirical microevidence appears increasingly at odds with the full-information rational expectation assumption. We explore models of expectation formation that can potentially explain why and how survey data deviate from full-information rational expectations. Using the New Keynesian Phillips curve as an extensive case study, we demonstrate how incorporating survey data on inflation expectations can address a number of otherwise puzzling shortcomings that arise under the assumption of full-information rational expectations. (JEL D04, E24, E27, E31, E37)

Estimating the New Keynesian Phillips Curve for the UK: evidence from the inflation-indexed bonds market

2017 ◽  
Vol 18 (1) ◽  
Author(s):  
Hardik A. Marfatia
Keyword(s):  
Phillips Curve ◽  
New Keynesian ◽  
Inflation Expectations ◽  
New Keynesian Phillips Curve ◽  
Indexed Bonds ◽  
Unobserved Component ◽  
Expected Inflation ◽  
Component Approach ◽  
Unobserved Component Model ◽  
The Uk

Abstract This paper utilizes the information in the inflation-indexed bonds market to estimate the New Keynesian Phillips Curve for the UK using an unobserved component approach. The main advantage of this approach comes from using the Kalman filter to explicitly estimate the unobserved expected inflation from the observed break-even inflation rates – the yield difference between the inflation-indexed bonds and the nominal bonds. Our results show that the expected inflation estimated from the unobserved component model plays a significant role in explaining the inflation dynamics in the UK. The evidence also suggests that the estimated inflation expectations are better able to capture the evolution of actual inflation process as compared to the break-even inflation rate as a proxy for expected inflation.

scholarly journals Is The Phillips Curve Alive and Well After All? Inflation Expectations and the Missing Disinflation

2013 ◽  
Author(s):  
Olivier Coibion ◽  
Yuriy Gorodnichenko
Keyword(s):  
Phillips Curve ◽  
Inflation Expectations

scholarly journals Recovering Keynesian Phillips curve theory: hysteresis of ideas and the natural rate of unemployment

2018 ◽  
Vol 6 (4) ◽  
pp. 473-492 ◽  
Author(s):  
Thomas Palley
Keyword(s):  
Economic Theory ◽  
Phillips Curve ◽  
50Th Anniversary ◽  
Theoretical Argument ◽  
Natural Rate ◽  
Macroeconomic Theory ◽  
Natural Rate Of Unemployment ◽  
Economics Profession ◽  
Curve Theory

Economic theory is prone to hysteresis. Once an idea is adopted, it is difficult to change. In the 1970s, the economics profession abandoned the Keynesian Phillips curve and adopted Milton Friedman's natural rate of unemployment (NRU) hypothesis. The shift was facilitated by a series of lucky breaks. Despite much evidence against the NRU, and much evidence and theoretical argument supportive of the Keynesian Phillips curve, the NRU hypothesis remains ascendant. The hypothesis has had an enormous impact on macroeconomic theory and policy. 2018 is the 50th anniversary of Friedman's introduction of the NRU hypothesis. The anniversary offers an opportunity to challenge rather than celebrate it.

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.

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