A Phillips Curve with Anchored Expectations and Short-Term Unemployment

February 25, 2015

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Format: Chicago

Laurence M. Ball, and Sandeep Mazumder. A Phillips Curve with Anchored Expectations and Short-Term Unemployment, (USA: International Monetary Fund, 2015) accessed November 12, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines the recent behavior of core inflation in the United States. We specify a simple Phillips curve based on the assumptions that inflation expectations are fully anchored at the Federal Reserve’s target, and that labor-market slack is captured by the level of shortterm unemployment. This equation explains inflation behavior since 2000, including the failure of high total unemployment since 2008 to reduce inflation greatly. The fit of our equation is especially good when we measure core inflation with the Cleveland Fed’s series on weighted median inflation. We also propose a more general Phillips curve in which core inflation depends on short-term unemployment and on expected inflation as measured by the Survey of Professional Forecasters. This specification fits U.S. inflation since 1985, including both the anchored-expectations period of the 2000s and the preceding period when expectations were determined by past levels of inflation.

Subject: Deflation, Economic forecasting, Financial crises, Global financial crisis of 2008-2009, Inflation, Labor, Prices, Unemployment, Unemployment rate

Keywords: Core CPI inflation, Core inflation, Core inflation-inflation, Deflation, Europe, Global financial crisis of 2008-2009, Inflation, Inflation expectation, Inflation rate, Phillips curve, Short-term unemployment, SPF inflation forecast, Unemployment, Unemployment coefficient, Unemployment rate, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/039
Stock No:

WPIEA2015039
ISBN:

9781498394208
ISSN:

1018-5941

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