Discussion Paper
Nonlinear Phillips Curves
Smith, Simon C.; Timmermann, Allan; Wright, Jonathan H. (2024-09-04)
The slope of the Phillips curve flattened around the turn of the century. The slope, however, is also kinked (nonlinear) such that it is steeper in a tight labor market than in a more normal one. The magnitude of this kink means that the flattening of the Phillips curve around the turn of the century has not changed much the slope in a tight labor market. This holds for both price and wage Phillips curves and for both the United States (US) and the European Union (EU). Our findings are relevant to policy debates about the costs and benefits of a running a hot labor market. Monetary ...
FEDS Notes , Paper 2024-09-04-1

Discussion Paper
Monetary Policy in Uncertain Times
Smith, Simon C.; Timmermann, Allan; Wright, Jonathan H. (2024-08-30)
We investigate the effect of uncertainty surrounding the slope of the Phillips curve on optimal monetary policy. To do this, we first account for parameter uncertainty in a time-invariant Bayesian Phillips curve model. Second, we generalize this model to allow for instabilities in the form of breaks. In both the United States (US) and the European Union (EU), we identify a break around the turn of the century, after which the Phillips curve flattened. Finally, we show how breaks amplify uncertainty in the Phillips curve model, significantly impacting optimal monetary policy. Accounting for ...
FEDS Notes , Paper 2024-08-30-1