Journal Article

A Growth-Augmented Phillips Curve


Abstract: Empirical studies find that the link between inflation and economic slack has weakened in recent decades, a development that could hamper monetary policymakers as they aim to achieve their inflation objective. We show that while the role of economic slack has diminished, economic growth has become a significant driver of inflation dynamics, indicating that the link between inflation and economic activity remains but the relevant gauge of activity has changed. The new evidence suggests that the COVID-19-related recession could induce substantial disinflationary pressure.

https://doi.org/10.26509/frbc-ec-202016

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Economic Commentary

Volume: 2020

Issue: 16

Pages: 6