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Changing inflation dynamics, evolving monetary policy: an overview
Understanding the dynamics of inflation has become an important
challenge for both policymakers and researchers over the past decade.
Empirical models linking inflation and economic activity—versions of
the so-called Phillips curve—have failed to account for the behavior of
inflation in many ...
Trend, seasonal, and sectorial inflation in the Euro Area
A central focus of monetary policy is the underlying rate of inflation
that might be expected to prevail over a horizon of one or two years.
Because inflation is estimated from noisy data, the estimation of
this underlying rate of inflation, which we refer to as trend inflation,
requires statistical ...
The supply-side origins of U.S. inflation
In recent years, we have not seen much of a negative correlation
between inflation, the time series plotted in figure 1, and measures of
resource slack, based on real GDP plotted in figure 2. This flattening
of the Phillips curve in many countries across the world has startled
monetary policymakers. ...
Inflation globally
The fortunes of the Phillips curve have ebbed and flowed ever
since it was proposed by Phillips (1958). Although its origins are
primarily as an empirical regularity, there is now a vast literature
that provides more formal justification. In recent times, the Great
Moderation and the modern era ...
The nonpuzzling behavior of median inflation
For decades, textbooks have explained inflation behavior with
Friedman (1968)’s Phillips curve: the inflation rate depends on
expected inflation and the deviation of unemployment from its natural
rate. Yet this theory has always been controversial, and skepticism
has been rampant in the decade ...
Public trust and central banking
Central bank independence is one of the most remarkable pieces of institutional architecture fostered by economic thinking in the last half century. Theoretical studies in the 1980s stressed central bank independence as a precondition to bringing inflation under lasting control, and support for reform ...
Inflation targeting under political pressure
Historically, many emerging economies, particularly in Latin America, battled against persistently high and volatile inflation. Today, emerging economies continue to experience higher inflation than developed ones, and their central banks deviate more frequently from inflation targets. These patterns ...
The link between labor cost inflation and price inflation in the Euro Area
To gauge inflationary pressures, policymakers generally pay close
attention to labor cost developments. A key reason has been the widely
held view that labor cost inflation (i.e., wage inflation adjusted for
productivity developments) is one of the main causes of price inflation.
From a theoretical ...
Changing inflation dynamics, evolving monetary policy
Empirical models have failed to explain inflation behavior over the last 20 years in most developed economies. The unusual inflation dynamics—the ‘missing deflation’ during recessions and the ‘missing inflation’ during recoveries—points to a failure of Phillips curve predictions. Several hypotheses ...
Trade exposure and the evolution of inflation dynamics
The Phillips curve—the relationship between price inflation
and fluctuations in economic activity— is a central building block
of economic models that allow for nominal rigidities and are relied
upon by central banks around the world to gauge cyclical inflationary
pressures and forecast inflation. ...