Phillips Curve Doesn't Help Forecast Inflation, Fed Study Finds
- Paper co-authored by top-ranking Philadelphia Fed economist
- Findings offer ‘no evidence for relying on the Phillips curve’
Why the Phillips Curve Is Key for Fed's Inflation Target
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A fundamental relationship of mainstream economic theory at the heart of the Federal Reserve’s strategy for setting interest rates has been a poor guide for policy makers for at least three decades, according to a study by the Philadelphia Fed’s top-ranking economist.
The paper, co-authored by Philadelphia Fed Director of Research Michael Dotsey, shows that forecasting models based on the so-called Phillips curve, which asserts a link between unemployment and inflation, don’t actually help predict inflation.