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Newsletter
The Recent Steepening of Phillips Curves
The Phillips curve captures the empirical inverse relationship between the level of inflation and unemployment. The reciprocal of its slope, sometimes referred to as the “sacrifice ratio,” represents the increase in the unemployment rate associated with a 1 percentage point reduction in the inflation rate. In this Chicago Fed Letter, we provide evidence that the Phillips curve has steepened in many industrialized countries since the start of the recovery from the Covid-19 pandemic. This suggests a lower sacrifice ratio now than before 2020.
Working Paper
Playing with Money
Experimental studies in monetary economics usually study infinite horizon models. Yet, the time constraints of the laboratory sessions in which these models are conducted create finite horizons that imply monetary equilibria cannot exist. Moreover, laboratory subjects do not treat the probabilistic termination rule typically used in a manner consistent with the discount factor that the rule is intended to replace. Thus, it is unclear whether these experiments evaluate subjects' use of money to ameliorate trading frictions as an equilibrium phenomenon, their inability to understand backward ...