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

  • Ellen E. Meade
  • Daniel L. Thornton

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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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. Athanasios Orphanides, 1998. "Monetary policy rules based on real-time data," Finance and Economics Discussion Series 1998-03, Board of Governors of the Federal Reserve System (U.S.).
  2. 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.
  3. Michael T. Kiley, 2010. "Output gaps," Finance and Economics Discussion Series 2010-27, Board of Governors of the Federal Reserve System (U.S.).
  4. Athanasios Orphanides & Simon van Norden, 2004. "The reliability of inflation forecasts based on output gap estimates in real time," Finance and Economics Discussion Series 2004-68, Board of Governors of the Federal Reserve System (U.S.).
  5. 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.
  6. Orphanides, Athanasios, 2003. "The quest for prosperity without inflation," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 633-663, April.
  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, issue Mar.
  8. Marvin Goodfriend & Robert King, 2005. "The Incredible Volcker Disinflation," NBER Working Papers 11562, National Bureau of Economic Research, Inc.
  9. 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.
  10. 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.
  11. Ellen E. Meade, 2005. "The FOMC: preferences, voting, and consensus," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 93-101.
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