A Phillips Curve with Anchored Expectations and Short-Term Unemployment

35 Pages Posted: 1 Dec 2014 Last revised: 6 Feb 2023

See all articles by Laurence Ball

Laurence Ball

Johns Hopkins University - Department of Economics; National Bureau of Economic Research (NBER); International Monetary Fund (IMF)

Sandeep Mazumder

Wake Forest University - Department of Economics; Johns Hopkins University - Department of Economics; International Monetary Fund (IMF)

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Date Written: November 2014

Abstract

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 short-term 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.

Suggested Citation

Ball, Laurence M. and Mazumder, Sandeep, A Phillips Curve with Anchored Expectations and Short-Term Unemployment (November 2014). NBER Working Paper No. w20715, Available at SSRN: https://ssrn.com/abstract=2532296

Laurence M. Ball (Contact Author)

Johns Hopkins University - Department of Economics ( email )

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Sandeep Mazumder

Wake Forest University - Department of Economics ( email )

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United States

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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