A Growth-Augmented Phillips Curve

Kristen Tauber and Willem Van Zandweghe

Economic Commentary, 2020, vol. 2020, issue 16, 6

Abstract: Empirical studies find that the link between inflation and economic slack has weakened in recent decades, a development that could hamper monetary policymakers as they aim to achieve their inflation objective. We show that while the role of economic slack has diminished, economic growth has become a significant driver of inflation dynamics, indicating that the link between inflation and economic activity remains but the relevant gauge of activity has changed. The new evidence suggests that the COVID-19-related recession could induce substantial disinflationary pressure.

Date: 2020
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DOI: 10.26509/frbc-ec-202016

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