Evolving Inflation Dynamics and the New Keynesian Phillips Curve

23 Pages Posted: 9 Dec 2012

Date Written: 2007


In economic policy discussions, the negative correlation between inflation rates and unemployment rates or output growth, also known as the Phillips curve, is often invoked as representing a structural tradeoff between inflation and real activity. Arguments by Friedman and Phelps in the late 1960s and the subsequent experience of high inflation and low output growth in the 1970s convinced most economists that the Phillips curve is indeed not invariant to changes in economic policy. Recently, a variant of the Phillips curve, the New Keynesian Phillips Curve (NKPC), has gained popularity among monetary policymakers and economists as a structural representation of the inflation-output tradeoff. In this article, I study whether the NKPC can indeed be viewed as a structural relationship.

Suggested Citation

Hornstein, Andreas, Evolving Inflation Dynamics and the New Keynesian Phillips Curve (2007). FRB Richmond Economic Quarterly, vol. 93, no. 4, Fall 2007, pp. 317-339. Available at SSRN: https://ssrn.com/abstract=2186638

Andreas Hornstein (Contact Author)

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States
804-697-8266 (Phone)
804-697-8255 (Fax)

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