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The Phillips curve and US monetary policy: what the FOMC transcripts tell us

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  • Ellen E. Meade
  • Daniel L. Thornton

Abstract

The Phillips curve framework, which includes the output gap and natural rate hypothesis, plays a central role in the canonical macroeconomic model used in analyses of monetary policy. It is now well understood that real-time data must be used to evaluate historical monetary policy. We believe that it is equally important that macroeconomic models used to evaluate historical monetary policy reflect the framework that policymakers used to formulate that policy. To that end, we use the Federal Open Market Committee (FOMC) transcripts to examine the role that the Phillips curve framework played in Fed policymaking from 1979 through 2003. The FOMC's transcripts allow us to trace the evolution in policymakers' discussion of the Phillips curve framework over time. Our analysis suggests that the Phillips curve was much less central to the formulation and implementation of US monetary policy than it is in models commonly used to evaluate that policy. Copyright 2012 Oxford University Press 2011 All rights reserved, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 64 (2012)
Issue (Month): 2 (April)
Pages: 197-216

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Handle: RePEc:oup:oxecpp:v:64:y:2012:i:2:p:197-216

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  1. Orphanides, Athanasios, 1999. "The Quest for Prosperity Without Inflation," Working Paper Series, Sveriges Riksbank (Central Bank of Sweden) 93, Sveriges Riksbank (Central Bank of Sweden).
  2. Pier Francesco Asso & George A. Kahn & Robert Leeson, 2010. "The Taylor rule and the practice of central banking," Research Working Paper, Federal Reserve Bank of Kansas City RWP 10-05, Federal Reserve Bank of Kansas City.
  3. Kiley, Michael T., 2013. "Output gaps," Journal of Macroeconomics, Elsevier, Elsevier, vol. 37(C), pages 1-18.
  4. Athanasios Orphanides, 1998. "Monetary policy rules based on real-time data," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1998-03, Board of Governors of the Federal Reserve System (U.S.).
  5. Daniel L. Thornton, 2005. "When did the FOMC begin targeting the federal funds rate? what the verbatim transcripts tell us," Working Papers, Federal Reserve Bank of St. Louis 2004-015, Federal Reserve Bank of St. Louis.
  6. Marvin Goodfriend & Robert G. King, 2005. "The Incredible Volcker Disinflation," Boston University - Department of Economics - Macroeconomics Working Papers Series, Boston University - Department of Economics WP2005-007, Boston University - Department of Economics.
  7. Katharine Neiss & Edward Nelson, 2002. "Inflation dynamics, marginal cost, and the output gap: evidence from three countries," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Mar.
  8. Orphanides, Athanasios & van Norden, Simon, 2005. "The Reliability of Inflation Forecasts Based on Output Gap Estimates in Real Time," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4830, C.E.P.R. Discussion Papers.
  9. Jonas D. M. Fisher & Chin Te Liu & Ruilin Zhou, 2002. "When can we forecast inflation?," Economic Perspectives, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue Q I, pages 32-44.
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  11. Ellen E. Meade, 2005. "The FOMC: preferences, voting, and consensus," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Mar, pages 93-101.
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Cited by:
  1. Christian Pierdzioch & Jan-Christoph Rülke & Peter Tillmann, 2013. "Using forecasts to uncover the loss function of FOMC members," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201302, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. El-Shagi, Makram & Jung, Alexander, 2013. "Does the Greenspan era provide evidence on leadership in the FOMC?," Working Paper Series, European Central Bank 1579, European Central Bank.
  3. Thornton, Daniel L., 2014. "Monetary policy: Why money matters (and interest rates don’t)," Journal of Macroeconomics, Elsevier, Elsevier, vol. 40(C), pages 202-213.
  4. Peter Tillmann, 2009. "The Fed’s perceived Phillips curve: Evidence from individual FOMC forecasts," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 200946, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  5. Stefan Reitz & Ulf. D. Slopek, 2012. "Fixing the Phillips Curve: The Case of Downward Nominal Wage Rigidity in the US," Kiel Working Papers, Kiel Institute for the World Economy 1795, Kiel Institute for the World Economy.
  6. Jakob de Haan & David-Jan Jansen, 2011. "Corporate culture and behaviour: A survey," DNB Working Papers, Netherlands Central Bank, Research Department 334, Netherlands Central Bank, Research Department.

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