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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 1982 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.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2010-017.

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Date of creation: 2010
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Handle: RePEc:fip:fedlwp:2010-017

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Keywords: Phillips curve ; Monetary policy ; Federal Open Market Committee;

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References

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  1. Jonas D. M. Fisher & Chin Te Liu & Ruilin Zhou, 2002. "When can we forecast inflation?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 32-44.
  2. Daniel L. Thornton, 2005. "When did the FOMC begin targeting the federal funds rate? what the verbatim transcripts tell us," Working Papers 2004-015, Federal Reserve Bank of St. Louis.
  3. Marvin Goodfriend & Robert G. King, 2005. "The Incredible Volcker Disinflation," Boston University - Department of Economics - Macroeconomics Working Papers Series WP2005-007, Boston University - Department of Economics.
  4. Katharine Neiss & Edward Nelson, 2002. "Inflation dynamics, marginal cost, and the output gap: evidence from three countries," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  5. Kiley, Michael T., 2013. "Output gaps," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 1-18.
  6. Athanasios Orphanides & Simon van Norden, 2003. "The Reliability of Inflation Forecasts Based on Output Gap Estimates in Real Time," CIRANO Working Papers 2003s-01, CIRANO.
  7. Ellen E. Meade, 2005. "The FOMC: preferences, voting, and consensus," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 93-101.
  8. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September.
  9. John C. Williams, 2006. "Inflation persistence in an era of well-anchored inflation expectations," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct13.
  10. Orphanides, Athanasios, 1999. "The Quest for Prosperity Without Inflation," Working Paper Series 93, Sveriges Riksbank (Central Bank of Sweden).
  11. George A. Kahn, 2012. "The Taylor Rule and the Practice of Central Banking," Book Chapters, in: Evan F. Koenig & Robert Leeson & George A. Kahn (ed.), The Taylor Rule and the Transformation of Monetary Policy, chapter 3 Hoover Institution, Stanford University.
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Cited by:
  1. El-Shagi, Makram & Jung, Alexander, 2013. "Does the Greenspan era provide evidence on leadership in the FOMC?," Working Paper Series 1579, European Central Bank.
  2. Tillmann, Peter, 2010. "The Fed's perceived Phillips curve: Evidence from individual FOMC forecasts," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1008-1013, December.
  3. Christian Pierdzioch & Jan-Christoph Rülke & Peter Tillmann, 2013. "Using forecasts to uncover the loss function of FOMC members," MAGKS Papers on Economics 201302, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  4. Jakob de Haan & David-Jan Jansen, 2011. "Corporate culture and behaviour: A survey," DNB Working Papers 334, Netherlands Central Bank, Research Department.
  5. Stefan Reitz & Ulf. D. Slopek, 2012. "Fixing the Phillips Curve: The Case of Downward Nominal Wage Rigidity in the US," Kiel Working Papers 1795, Kiel Institute for the World Economy.

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