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 ...

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 ...

This paper surveys and modestly extends the theory of menu-cost models of the behavior of the aggregate price level after large-cost shocks. It does so in the context of an economy with a high underlying rate of inflation. It concentrates on the effect of large permanent and unexpected increases ...

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. ...

Before the Global Financial Crisis, a drive towards greater central-bank autonomy and transparency, as part of the achievement of greater central-bank credibility that had begun in the advanced economies (AE), spread to the emerging market economies (EME). This process was greatly enhanced by the ...

For a small open economy, maintaining a stable exchange rate and moderate levels of inflation is often a goal of primary importance. At the same time, the profession has recognized the tight link between fiscal and monetary policies in determining inflation dynamics. Thus, the goal of a stable exchange ...

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 ...

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 ...

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 ...

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 ...