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Is There a Stable Relationship between Unemployment and Future Inflation?

Terry Fitzgerald (), Callum Jones (), Mariano Kulish and Juan Pablo Nicolini ()

No 614, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: The empirical literature on the stability of the Phillips curve has largely ignored the bias that endogenous monetary policy imparts on estimated Phillips curve coefficients. We argue that this omission has important implications. When policy is endogenous, estimation based on aggregate data can be uninformative as to the existence of a stable relationship between unemployment and future inflation. But we also argue that regional data can be used to identify the structural relationship between unemployment and inflation. Using city-level and state-level data from 1977 to 2017, we show that both the reduced form and the structural parameters of the Phillips curve are, to a substantial degree, quite stable over time.

Keywords: Endogenous monetary policy; Stability of the Phillips curve (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 73
Date: 2020-10-07
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:88853

DOI: 10.21034/sr.614

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