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Inflation dynamics and the New Keynesian Phillips curve

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  • Keith Sill

Abstract

A 1977 amendment to the Federal Reserve Act states that the Fed?s mandate is ?to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.? Moderate long-term interest rates require low and stable inflation. Monetary policymakers use instruments such as a short-term interest rate to guide the economy with the aim of achieving an inflation objective. To help guide their decisions, monetary policymakers benefit from having a reliable theory of how inflation is determined, one that relates the setting of their instrument to the unexpected events that hit the economy and consequently to the rate of inflation and other economic variables. In ?Inflation Dynamics and the New Keynesian Phillips Curve,? Keith Sill examines a prominent theory of how inflation is determined, as articulated in what is called the New Keynesian Phillips curve. He also investigates some of the implications of the theory for the conduct of monetary policy.

Suggested Citation

  • Keith Sill, 2011. "Inflation dynamics and the New Keynesian Phillips curve," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 17-25.
    • Handle: RePEc:fip:fedpbr:y:2011:i:q1:p:17-25
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    References listed on IDEAS

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    1. James H. Stock & Mark W. Watson, 2008. "Phillips curve inflation forecasts," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
    2. Schmitt-Grohe, Stephanie & Uribe, Martin, 2007. "Optimal simple and implementable monetary and fiscal rules," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1702-1725, September.
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    5. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
    6. Roc Armenter, 2011. "Output gaps: uses and limitation," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 1-8.
    7. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    8. Andrew Atkeson & Lee E. Ohanian, 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 25(Win), pages 2-11.
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    Cited by:

    1. Roc Armenter, 2011. "Output gaps: uses and limitation," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 1-8.
    2. Keith Kuester, 2011. "The effectiveness of government spending in deep recessions: a New Keynesian perspective," Business Review, Federal Reserve Bank of Philadelphia, issue Q3, pages 14-20.
    3. Michael Dotsey & Charles I. Plosser, 2012. "Designing monetary policy rules in an uncertain economic environment," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 1-9.

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