The Phillips curve becomes the Phillips cloud with no inexorable trade-off between inflation and unemployment.

Fiona Sydney

2019-08-02 17:39:00 Fri ET

The Phillips curve becomes the Phillips cloud with no inexorable trade-off between inflation and unemployment. Stanford finance professor John Cochrane disagrees with Harvard macro economist Gregory Mankiw with respect to the mysterious and inexorable trade-off between inflation and unemployment. It is difficult to depict a key downward Phillips curve for the post-war period because there is no conclusive trade-off between inflation and unemployment. This empirical result remains true even when we consider alternative measures of U.S. inflation such as the deflator for personal consumption expenditures (PCE) and core consumer price index (CPI) inflation less food and energy. Furthermore, the empirical result continues to hold in practice when we consider the economic output gap in lieu of the unemployment rate. Cochrane suggests no clear trade-off between inflation and unemployment in the Phillips cloud. In other words, the Phillips curve is too flat to be true.

This analysis poses a conceptual challenge to New Keynesians who seek to attain the Federal Reserve dual mandate of both price stability and maximum sustainable employment. The central bank can constrain money supply growth as a potential source of economic disturbance; yet, the long-term welfare cost of low inflation has no real impact on economic output, employment, and capital investment.

 


If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.

Blog+More

USPTO fintech patent protection and accreditation

Andy Yeh Alpha

2023-01-03 09:34:00 Tuesday ET

USPTO fintech patent protection and accreditation

  USPTO fintech patent protection and accreditation   As of early-January 2023, the U.S. Patent and Trademark Office (USPTO) has approved

+See More

Our fun podcasts deep-dive into the current global trends, topics, and issues in support of better stock market investment decisions.

Daphne Basel

2025-02-27 07:24:00 Thursday ET

Our fun podcasts deep-dive into the current global trends, topics, and issues in support of better stock market investment decisions.

Our AYA fun podcasts deep-dive into the current global trends, topics, and issues in macro finance, political economy, public policy, strategic management,

+See More

Federal Reserve raises the interest rate again in mid-2018 in response to 2% inflation and wage growth.

John Fourier

2018-07-09 09:39:00 Monday ET

Federal Reserve raises the interest rate again in mid-2018 in response to 2% inflation and wage growth.

The Federal Reserve raises the interest rate again in mid-2018 in response to 2% inflation and wage growth. The current neutral interest rate hike neither b

+See More

Basic income reforms can contribute to better health care, infrastructure, education, technology, and residential protection.

Daisy Harvey

2023-02-28 10:27:00 Tuesday ET

Basic income reforms can contribute to better health care, infrastructure, education, technology, and residential protection.

Basic income reforms can contribute to better health care, public infrastructure, education, technology, and residential protection. Philippe Van Parijs

+See More

Facebook, Apple, Microsoft, Google, and Amazon account for more than 15% of market capitalization of the U.S. stock market.

Jacob Miramar

2017-05-19 09:39:00 Friday ET

Facebook, Apple, Microsoft, Google, and Amazon account for more than 15% of market capitalization of the U.S. stock market.

FAMGA stands for Facebook, Apple, Microsoft, Google, and Amazon. These tech giants account for more than 15% of market capitalization of the American stock

+See More

Global trade transforms from labor cost arbitrage to high-skill knowledge work.

Laura Hermes

2019-01-29 10:33:00 Tuesday ET

Global trade transforms from labor cost arbitrage to high-skill knowledge work.

Global trade transforms from labor cost arbitrage to high-skill knowledge work. In fact, multinational manufacturers have been trying to create global suppl

+See More