Inflation Expectations, Uncertainty, the Phillips Curve, and Monetary Policy

2009 ◽  
pp. 247-266 ◽  
Author(s):  
Christopher A. Sims
Keyword(s):  
Monetary Policy ◽  
Phillips Curve ◽  
Inflation Expectations

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.

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.

Implementation of dual monetary policy and its relevance to inflation and unemployment in the Phillips curve context in Indonesia

2019 ◽  
Vol 12 (5) ◽  
pp. 680-697
Author(s):  
Amrial ◽  
Ahmad Mikail ◽  
Tika Arundina
Keyword(s):  
Monetary Policy ◽  
Transmission Lines ◽  
Phillips Curve ◽  
Impulse Response Function ◽  
Inflation Expectations ◽  
Annual Data ◽  
Content Type ◽  
Policy Transmission ◽  
Effective Policy ◽  
Auto Regression

Purpose Studies linking monetary policy to inflation and unemployment rates in the context of the Phillips curve are limited to conventional economics. On the other hand, research related to application of the dual monetary policy is limited to discussion of monetary policy transmission lines, especially in Islamic banking channels. Therefore, this study aims to determine the monetary policy response in implementation of the dual monetary policy to two important indicators in the macro economy, namely, inflation and unemployment. In addition, the study reveals the relevance of the Phillips curve in Indonesia. Design/methodology/approach The method used is vector auto regression vector autoregression (VAR) with monthly data from February 2005 to October 2016 for the first model and semi-annual data from February 2005 to August 2017 for the second model. Analysis of VAR estimation in this research uses the impulse response function (IRF) to analyze the degree of sensitivity or responsiveness to a shock between variables and the variance decomposition (VD) application to analyze how the proportion of each independent variable’s contribution affects the money supply. Findings The result shows that monetary policy has responded appropriately to the problems of inflation and unemployment. However, inflation generates a bigger response than unemployment. Bank Indonesia considers the inflation expectations aspect of both conventional and Islamic references. Finally, the concept of the Phillips curve proves to be irrelevant in Indonesia. Practical implications The central bank is expected to build a more effective policy for transmission from the monetary sector to the real sector to effectively overcome the problems of inflation and unemployment. Furthermore, Indonesia needs to increase policies to overcome problems on the supply side. Originality/value The results of this study provide new insights into application of the dual monetary policy toward inflation and unemployment.

INFLATION, EXPECTATIONS, AND THE POLITICAL ECONOMY OF CONSERVATIVE BRITAIN, 1951–1964

2000 ◽  
Vol 43 (3) ◽  
pp. 827-847 ◽  
Author(s):  
ALAN BOOTH
Keyword(s):  
Monetary Policy ◽  
Phillips Curve ◽  
Central Element ◽  
Inflation Expectations ◽  
Policy Makers ◽  
Price Expectations ◽  
British Policy ◽  
Conservative Policy ◽  
And Performance ◽  
Post War

Analysis of policy after 1945 has been profoundly shaped by the idea of a post-war settlement, which is increasingly viewed as inherently inflationary. For much of the period 1951–64, British economic policy was centrally focused on reducing inflation. The extension of sterling's convertibility in the mid-1950s forced British policy-makers to be sensitive to overseas perceptions of British policy and performance. At the beginning of the Conservative government's period in office, monetary policy was believed to be the most effective instrument to control inflation, but its limitations slowly became apparent and created enormous tension between the Treasury and Bank of England. In the literature stimulated by the Phillips curve, the formation of price expectations is the central element in inflationary dynamics, and it is argued that after 1955 Conservative policy was driven by the need to find alternatives to monetary policy to prevent and then limit inflationary expectations. A number of these initiatives – a steep rise in unemployment and confrontation in pay bargaining – sit uncomfortably with the idea of the post-war settlement and an alternative perspective on the Conservative years, emphasizing the Radcliffe committee and the investigations into incomes policy, is proposed.

Credit Restriction or Economic Growth?

2019 ◽  
pp. 45-54
Author(s):  
E.Y. Sokolova ◽  
A.S. Tanasova
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Domestic Demand ◽  
Retirement Age ◽  
Inflation Expectations ◽  
Negative Consequences ◽  
Credit Restriction

At the end of 2018 — the very beginning of 2019 Russia faced negative consequences of the economic measures that took place in 2018, such as the retirement age rising, tightening sanctions against Russia, VAT rising which caused increased inflation expectations of people. The Bank of Russia increased the key rate in response. All these measures lead to decrease of domestic demand, and not stimulate economic growth. The article examines the possibility of using the monetary policy method of credit restriction to fulfil the presidential act to stimulate economic growth.

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