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Will inflation remain low?

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Abstract

The well-known Phillips curve suggests that future inflation depends on current and past inflation and a measure of economic slack or resource utilization. Using the unemployment gap to measure slack, a simple Phillips curve currently predicts that inflation will remain quite low through 2015. Two variations of the model, which impose a higher anchor for inflation expectations or focus only on a short-term unemployment gap, still predict that inflation will remain low, albeit higher than implied by the basic model.

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  • Yifan Cao & Adam Hale Shapiro, 2014. "Will inflation remain low?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00021
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    1. Michael D. Bauer & Jens H. E. Christensen, 2014. "Financial market outlook for inflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    2. Robert J. Gordon, 2013. "The Phillips Curve is Alive and Well: Inflation and the NAIRU During the Slow Recovery," NBER Working Papers 19390, National Bureau of Economic Research, Inc.
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