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This paper discusses the short-run tradeoff between inflation and unemployment. Although this tradeoff remains a necessary building block of business cycle theory, economists have yet to provide a completely satisfactory explanation for it. According to the consensus view among central bankers and monetary economists, a contractionary monetary shock raises(More)
There is a live debate about the role of house prices in the transmission mechanism of monetary policy. Do house prices merely reflect macroeconomic conditions, or are there important feedback effects from house prices to other economic variables? We consider a general equilibrium model where asymmetric information problems create frictions in credit(More)
In this paper, inflation dynamics in the United Kingdom are re-examined. Standard specifications of traditional Phillips curves have tended to overpredict inflation in the recent low inflation, low unemployment era in the United States, the United Kingdom and the euro area. This has stimulated the ‘New Phillips Curve’ approach, which has had success for the(More)
There is a live debate about the role of house prices in the transmission mechanism of monetary policy. Do house prices merely reflect macroeconomic conditions, or are there important feedback effects from house prices to other economic variables? We consider a general equilibrium model where asymmetric information problems create frictions in credit(More)
This paper suggests a formal interpretation of the ECB’s two-pillar framework for monetary policy. I decompose inflation in the euro area into highand low-frequency (or short-run and medium/long-run) components, which are correlated with monetary growth and the output gap, respectively. I propose and estimate a “two-pillar” Phillips curve that assumes that(More)
The past five decades have seen tremendous changes in inflation dynamics in the United States. Some of the changes arguably stem from transformations in the U.S. economy. Energy is a smaller share of expenditures than it was during the oil price shocks of the 1970s, labor union membership has declined sharply over the past 40 years, and there has been a(More)
Working papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views stated herein are those of the authors and are not(More)
Monetary Conditions Indices (MCIs) are weighted averages of changes in an interest rate and an exchange rate relative to their values in a base period. A few central banks calculate MCIs for use in monetary policy. Although the Bank of England does not calculate such an index, several international organizations as well as financial corporations construct(More)