Search Results
Journal Article
How Much Has the Cooling Economy Reduced Inflation?
Inflation still lies somewhat above the Federal Reserve’s 2% goal after slowing significantly since its spring 2022 peak. Analysis shows that two labor market indicators—the ratios of job vacancies to unemployed workers and of vacancies to effective job seekers—are particularly informative in determining excess demand’s impact on recent inflation. The measures suggest that declines in excess demand pushed inflation down almost three-quarters of a percentage point over the past two years. However, elevated demand continued to contribute 0.3 to 0.4 percentage point to inflation as of ...
Working Paper
Demand versus Supply: Which is More Important for Inflation?
I use Phillips curve type regressions to assess the relative contributions of demand and supply forces to U.S. inflation during the pandemic era from February 2020 onward and the decade following the end of the Great Recession. In the first specification (Model 1), demand and supply forces are measured using the vacancy-unemployment ratio and the New York Fed’s Global Supply Chain Pressure Index, respectively. In the second specification (Model 2), demand and supply forces are measured using the demand-driven and supply-driven components of PCE inflation from Shapiro (2025). The results ...
Working Paper
Inflation and the Gig Economy: Have the Rise of Online Retailing and Self-Employment Disrupted the Phillips Curve?
During the recovery from the Great Recession, inflation did not reach the central bank?s 2 percent objective as quickly as many models had predicted. This coincided with increases in online shopping, which arguably made retail markets more contestable and damped retail inflation. This hypothesis is tested using data on the online share of retail sales, which are incorporated into an econometric model. Results imply that the rise of online retail has flattened the Phillips Curve, reducing the sensitivity of inflation to unemployment rate changes. Improvement in fit from just including the ...
Working Paper
Anchored or Not: How Much Information Does 21st Century Data Contain on Inflation Dynamics?
Inflation was low and stable in the United States during the first two decades of the 21st century and broke out of its stable range in 2021. Experience in the early 21st century differed from that of the second half of the 20th century, when inflation showed persistent movements including the "Great Inflation" of the 1970s. This analysis examines the extent to which the experience from 2000-2019 should lead a Bayesian decisionmaker to update their assessment of inflation dynamics. Given a prior for inflation dynamics consistent with 1960-1999 data, a Bayesian decisionmaker would not ...
Discussion Paper
The Long and Short of It: The Impact of Unemployment Duration on Compensation Growth
How tight is the labor market? The unemployment rate is down substantially from its October 2009 peak, but two-thirds of the decline is due to people dropping out of the labor force. In addition, an unusually large share of the unemployed has been out of work for twenty-seven weeks or more—the long-duration unemployed. These statistics suggest that there remains a great deal of slack in U.S. labor markets, which should be putting downward pressure on labor compensation. Instead, compensation growth has moved modestly higher since 2009. A potential explanation is that the long-duration ...
Working Paper
Did the Federal Reserve Break the Phillips Curve? Theory and Evidence of Anchoring Inflation Expectations
In a macroeconomic model with drifting long-run inflation expectations, the anchoring of inflation expectations manifests in two testable predictions. First, expectations about inflation far in the future should no longer respond to news about current inflation. Second, better-anchored inflation expectations weaken the relationship between unemployment and inflation, flattening the reduced-form Phillips curve. We evaluate both predictions and find that communication of a numerical inflation objective better anchored inflation expectations in the United States but failed to anchor expectations ...
Working Paper
Dynamic Identification Using System Projections on Instrumental Variables
We propose System Projections on Instrumental Variables (SP-IV) to estimate structural relationships using regressions of structural impulse responses obtained from local projections or vector autoregressions. Relative to IV with distributed lags of shocks as instruments, SP-IV imposes weaker exogeneity requirements and can improve efficiency and increase effective instrument strength relative to the typical 2SLS estimator. We describe inference under strong and weak identification. The SP-IV estimator outperforms other estimators of Phillips Curve parameters in simulations. We estimate the ...
Working Paper
Nonlinearities in the Phillips Curve for the United States : Evidence Using Metropolitan Data
With the unemployment rate in the United States currently below estimates of its natural rate we examine if the relationship between inflation and unemployment is nonlinear. Using aggregate data we are unable to reject a linear relationship. However, using metropolitan-level data we find the slope of the Phillips curve is roughly twice as large when unemployment is low compared to when it is high. Nevertheless the simple nonlinear Phillips curves used here suggest a core CPI inflation rate that is only slightly different than the linear version over the next couple of years.
Discussion Paper
Measuring Labor Market Tightness: Data Update and New Web Feature
Good measures of labor market tightness are essential to predict wage inflation and to calibrate monetary policy. In an October 2024 post, we introduced a new indicator of labor market tightness and showed that it tracked wage inflation best out of a broad range of tightness measures. In this post, we update our index through 2025 and show that it also forecasts future wage inflation best both in and out of sample. In addition, we highlight availability of the index as a new regularly updated feature on the New York Fed’s website.
Journal Article
Reducing Inflation along a Nonlinear Phillips Curve
Inflation has climbed since 2021, as the labor market has tightened. Two historical data relationships can account for elevated inflation over the past two years: the Beveridge curve, which relates job vacancies and unemployment rates over the business cycle, and a nonlinear version of the Phillips curve, which links inflation to labor market slack. Combining estimates of the two curves implies that inflation can fall in conjunction with a “soft landing” for the economy if labor market easing is achieved mainly by reducing job vacancies rather than increasing unemployment.