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A Growth-Augmented Phillips Curve

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  • Kristen Tauber
  • Willem Van Zandweghe

Abstract

Empirical studies find that the link between inflation and economic slack has weakened in recent decades, a development that could hamper monetary policymakers as they aim to achieve their inflation objective. We show that while the role of economic slack has diminished, economic growth has become a significant driver of inflation dynamics, indicating that the link between inflation and economic activity remains but the relevant gauge of activity has changed. The new evidence suggests that the COVID-19-related recession could induce substantial disinflationary pressure.

Suggested Citation

  • Kristen Tauber & Willem Van Zandweghe, 2020. "A Growth-Augmented Phillips Curve," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2020(16), pages 1-6, July.
    • Handle: RePEc:fip:fedcec:88285
    DOI: 10.26509/frbc-ec-202016
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    References listed on IDEAS

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    5. Michael McLeay & Silvana Tenreyro, 2020. "Optimal Inflation and the Identification of the Phillips Curve," NBER Macroeconomics Annual, University of Chicago Press, vol. 34(1), pages 199-255.
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    7. Marco Del Negro & Michele Lenza & Giorgio E. Primiceri & Andrea Tambalotti, 2020. "What's Up with the Phillips Curve?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 51(1 (Spring), pages 301-373.
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