Prospects for Inflation in a High Pressure Economy: Is the Phillips Curve Dead or is It Just Hibernating?
This paper reviews a substantial range of empirical evidence on whether the Phillips curve is dead, i.e. that its slope has flattened to zero. National data going back to the 1950s and 60s yield strong evidence of negative slopes and significant nonlinearity in those slopes, with slopes much steeper in tight labor markets than in easy labor markets. This evidence of both slope and nonlinearity weakens dramatically based on macro data since the 1980s for the price Phillips curve, but not the wage Phillips curve. However, the endogeneity of monetary policy and the lack of variation of the unemployment gap, which has few episodes of being substantially below zero in tis sample period, makes the price Phillips curve estimates from this period less reliable. At the same time, state level and MSA level data since the 1980s yield significant evidence of both negative slope and nonlinearity in the Phillips curve. The difference between national and city/state results in recent decades can be explained by the success that monetary policy has had in quelling inflation and anchoring inflation expectations since the 1980s. We also review the experience of the 1960s, the last time inflation expectations became unanchored, and observe both parallels and differences with today. Our analysis suggests that reports of the death of the Phillips curve may be greatly exaggerated.
This paper was prepared for the 2019 US Monetary Policy Forum. This paper is not a product of the Research Department of Deutsche Bank Securities Inc,. The views expressed here reflect those of the authors only and may not be representative of others at Deutsche Bank Securities Inc., Columbia University, University of Chicago or the National Bureau of Economic Research. For disclosures related to Deutsche Bank Securities Inc. please see https://ger.gm.cib.intranet.db.com/ger/disclosure/DisclosureDirectory.eqsr. Mishkin and Sufi thank the Initiative on Global Markets at Chicago Booth for financial support. We want to thank especially Justin Weidner for his many substantive contributions to this paper. We also thank Sebastian Hanson and Suvir-Kumar Ranjan for their excellent research assistance. We have benefitted from comments on earlier drafts of this paper by.Steve Cecchetti, Michael Feroli, David Greenlaw, Ethan Harris, Jim Hamilton, Anil Kashyap, Oren Klachkin, Catherine Mann, John Roberts, Kim Schoenholz, and Ken West. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Frederic S. Mishkin
Frederic S. Mishkin
DISCLOUSRE OF OUTSIDE COMPENSATED ACTIVITIES
As of April 2019
(2005 to present, excludes honoraria of $1,000 or less and royalty income from books)
Consulting: Federal Reserve Bank of New York, Bank of Korea; National Bureau of Economic Research, FDIC, Interamerican Development Bank; 4 hedge funds, BTG Pactual, Gavea Investimentos; Reserve Bank of Australia, Federal Reserve Bank of San Francisco, Einaudi Institute, Bank of Italy
Teaching: Study Center Gerzensee, Swiss National Bank
Speeches and Presentations: Lexington Partners; Tudor Investment, Brevan Howard, UBS, Pension Real Estate Association; Goodwin Proctor, Penn State University, Villanova University, Shroeder’s Investment Management, Premiere, Inc, Muira Global, Bidvest, NRUCF, BTG Asset Management, Futures Industry Association, ACLI, Handelsbanken, National Business Travel Association, Goldman Sachs, Urban Land Institute, Deloitte, Barclays Capital, CME Group; Barclays Capiital, BNP Paribas, Fidelity Investments, Deutsche Bank,, Freeman and Co., Bank America, Treasury Mangement Association, International Monetary Fund; Kairos Investments, Deloitte and Touche, Instituto para el Desarrollo Empreserial de lat Argentina, Handelsbanken, Danske Capital, WIPRO, University of Calgary, Pictet & Cie, Zurich Insurance Company, Central Bank of Chile, Manhattanville College, Deloitte and Touche, RBC Capital Markets, Handelsbanken, Elliot Management, Arizona State University, Goldman Sachs, Investment Management Consultants Association, Griswold Center for Economic Policy Studies at Princeton University, Federal Reserve Bank of Dallas, World Bank, Goldman Sachs, KPMG, Central Bank of Nigeria, UBS, Federal Reserve Bank of Boston, American Council of Life Insurance, Oesterreichische Nationalbank, Fondo Latinamericano de Reservas, Reserve Bank of Australia, Federal Reserve Bank of Boston, UBS
Co-Director, U.S. Monetary Policy Forum
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U.S. Monetary Policy Forum, “Prospects for Inflation in a High-Pressure Economy: Is the Phillips Curve Dead or is it Just Hibernating?” February 2019.
- Cross-state analysis of data on wages, prices, and the unemployment rate suggests that a tight labor market is associated with higher...
Peter Hooper & Frederic S. Mishkin & Amir Sufi, 2019. "Prospects for Inflation in a High Pressure Economy: Is the Phillips Curve Dead or is It Just Hibernating?," Research in Economics, .