Immaculate inflation vs Phillips curve
As Karl Smith pointed out a decade ago, the doctrine of immaculate inflation, in which money translates directly into inflation – a doctrine that was invoked to predict inflationary consequences from Fed easing despite a depressed economy – makes no sense. And the claim that there’s weak or no evidence of a link between unemployment and inflation is sustainable only if you insist on restricting yourself to recent U.S. data. Take a longer and broader view, and the evidence is obvious.
Immaculate Inflation Strikes Again (Wonkish)
By: Paul Krugman – City University of New York
Where is the unemployment-inflation link?
If we abandon the traditional Phillips curve view of inflation, what do we replace it with? I think that the traditional money supply/demand approach provides a firmer foundation for understanding inflation. In particular, we can expect the price-level to rise as households and firms attempt to dispose of excess nominal wealth balances (as when government debt is issued too rapidly when an economy is near full employment–a situation much like today). Conversely, we can expect the price-level to decline (or inflation to slow down) as the demand for safe nominal wealth rises (as in times of crisis). The framework is perfectly consistent with the Phillips curve, but with the direction of causality mainly reversed.
Inflation and unemployment
By: David Andolfatto – Federal Reserve Bank of St. Louis
How did we get here?
This blog post traces the historical evolution of the Phillips curve.
Friedman 1968 at 50
By: John Cochrane – Stanford University
