Inflation Forecast 2014-2014: Continued Mild Price Increases - 1 views
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Inflation is likely to remain mild in the next two years, but first a caution: none of the inflation forecasting models is doing a good job these days.
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the Phillips Curve was our primary way of looking at inflation. William Phillips found an inverse relationship between inflation and unemployment over the period 1861-1957. This simple approach was used here in the United States in the 1960s and 70s.
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With lower unemployment you would expect greater inflation. However, the Phillips Curve does not explain why inflation didn’t go down much when our unemployment rate was high a few years ago.
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This article from Forbes is primarily titled to be a forecast about inflation in the coming fiscal year but it also interestingly (and relevant to our studies) discusses the different arguments and criticism surrounding the modelled Phillips Curve. The article also contains an interesting graph that is based on recorded statistics about inflation and unemployment which helps to demonstrate the problems with the Phillips Curve model.