Anchored Inflation Expectations and the Slope of the Phillips Curve

Peter Lihn Jørgensen, Kevin J. Lansing

Publikation: KonferencebidragPaperForskning


We estimate a New Keynesian Phillips curve that allows for changes in the degree of anchoring of agents' subjective inflation forecasts. The estimated slope coefficient in U.S. data is highly significant and stable over the period 1960 to 2019. Out-of-sample forecasts with the model resolve both the "missing disinflation puzzle" during the Great Recession and the "missing inflation puzzle" during the subsequent recovery. Using a simple New Keynesian model, we show that if agents solve a signal extraction problem to disentangle temporary versus permanent shocks to inflation, then an increase in the policy rule coefficient on inflation serves to endogenously anchor agents' inflation forecasts. Improved anchoring reduces the correlation between changes in inflation and the output gap, making the backward-looking Phillips curve appear flatter. But at the same time, improved anchoring increases the correlation between the level of inflation and the output gap, leading to a resurrection of the "original" Phillips curve. Both model predictions are consistent with U.S. data since the late 1990s.
Publikationsdatofeb. 2021
Antal sider53
StatusUdgivet - feb. 2021
Begivenhed2021 Annual Meeting of the Society for Economic Dynamics - Zoom hosted by University of Minnesota, Minneapolis, USA
Varighed: 1 jul. 20213 jul. 2021


Konference2021 Annual Meeting of the Society for Economic Dynamics
LokationZoom hosted by University of Minnesota


  • Inflation expectations
  • Phillips curve
  • Inflation puzzles
  • Unobserved component time series model