Inflation: Stress-Testing the Phillips Curve

Oscar Jorda, Chitra Marti, Fernanda Nechio and Eric Tallman

FRBSF Economic Letter, 2019

Abstract: The well-known Phillips curve describes inflation as a persistent process that depends on public expectations of future inflation and economic slack, a measure of how stretched the economy?s resources are. The role of each component has changed over time. In particular, maintaining the public?s expectations that the Federal Reserve is committed to an inflation target of 2% has grown in importance over the slack component, in part because realigning expectations is costly to undo. Such considerations are important as the Federal Reserve evaluates its future policy options.

Date: 2019
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