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Is There a Stable Relationship between Unemployment and Future Inflation? Evidence from U.S. Cities

Author

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  • Fitzgerald, Terry J.

    (Federal Reserve Bank of Minneapolis)

  • Nicolini, Juan Pablo

    (Federal Reserve Bank of Minneapolis)

Abstract

This paper makes two straightforward points that we argue are central to understanding the literature and debate surrounding the stability of the Phillips curve. First, the endogeneity of monetary policy implies that aggregate data are largely uninformative as to the existence of a stable relationship between unemployment and future inflation. Second, if the NAIRU model is assumed to be true, regional data can be used to identify the structural relationship between unemployment and future inflation. We find that a 1 percentage point increase in the unemployment rate is associated with a roughly 0.3 percentage point decline in inflation over the next year.

Suggested Citation

  • Fitzgerald, Terry J. & Nicolini, Juan Pablo, 2014. "Is There a Stable Relationship between Unemployment and Future Inflation? Evidence from U.S. Cities," Working Papers 713, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmwp:713
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    File URL: http://www.minneapolisfed.org/research/wp/wp713.pdf
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    References listed on IDEAS

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    1. John H. Cochrane, 2011. "Determinacy and Identification with Taylor Rules," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 565-615.
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    1. repec:aea:aejpol:v:11:y:2019:i:2:p:1-34 is not listed on IDEAS
    2. repec:eee:jpolmo:v:39:y:2017:i:2:p:247-271 is not listed on IDEAS
    3. Albuquerque, Bruno & Baumann, Ursel, 2017. "Will US inflation awake from the dead? The role of slack and non-linearities in the Phillips curve," Journal of Policy Modeling, Elsevier, vol. 39(2), pages 247-271.
    4. Gabriel Chodorow-Reich, 2017. "Geographic Cross-Sectional Fiscal Multipliers: What Have We Learned?," Working Paper 458091, Harvard University OpenScholar.
    5. Gabriel Chodorow-Reich, 2019. "Geographic Cross-Sectional Fiscal Spending Multipliers: What Have We Learned?," American Economic Journal: Economic Policy, American Economic Association, vol. 11(2), pages 1-34, May.
    6. repec:fip:fedfel:00145 is not listed on IDEAS
    7. repec:nbr:nberch:14247 is not listed on IDEAS

    More about this item

    Keywords

    Endogenous monetary policy; Stability of the Philips Curve;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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