Journal Article

Inflation dynamics and the New Keynesian Phillips curve

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.

Keywords: Unemployment; Inflation (Finance); Phillips curve;

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Business Review

Publication Date: 2011

Issue: Q1

Pages: 17-25