Discussion Paper

How Much Do Inflation Expectations Matter for Inflation Dynamics?

Abstract: Inflation dynamics are often described by some form of the Phillips curve. Named after A. W. Phillips, the British economist whose study of U.K. wage and unemployment data laid the groundwork, the Phillips curve denotes an inverse relationship between inflation and some measure of economic slack. A much-discussed issue in the literature is how forward-looking this relationship is. In this post, we address this question using a flexible version of the New Keynesian Phillips curve (NKPC) to illustrate the key role that expectations play in inflation dynamics.

Keywords: Inflation expectations; Inflation; New Keynesian Phillips Curve;

JEL Classification: E2; E5;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2015-09-23

Number: 20150923