How Central Banks Use the Phillips Curve

In this episode, Lucas and Luna explore how central banks use the Phillips curve to gauge the trade-off between inflation and unemployment. They break down why the curve has flattened over the past two decades, using the U.S. experience from the 1970s to today as a case study. The conversation digs into the breakdown of the traditional relationship after the 2008 financial crisis, the role of anchored inflation expectations, and how the Federal Reserve still relies on a modified version of the curve for policy decisions. Lucas explains the concept of the 'non-accelerating inflation rate of unemployment' (NAIRU) and why it's become harder to estimate. Luna challenges the reliability of the Phillips curve in a low-inflation world, citing data from the 2010s when unemployment fell well below NAIRU estimates without triggering inflation. The episode also touches on recent research about the curve's potential re-emergence after the pandemic, and what that means for central bank credibility. A clear, conversational look at one of macroeconomics' most debated relationships. #PhillipsCurve #CentralBanks #Inflation #Unemployment #MonetaryPolicy #FederalReserve #NAIRU #Macroeconomics #LaborMarket #InflationExpectations #Economics #BusinessPodcast #FexingoBusiness #Fexingo #Podcast #InterestRates #WageGrowth #EconomicData Keep every episode free: buymeacoffee.com/fexingo