## Flattening of the Phillips Curve: Implications for Monetary Policy

_IMF Working Papers, April 1, 2007_

## Source details

**Canonical URL:** [Flattening of the Phillips Curve: Implications for Monetary Policy](https://www.imf.org/en/publications/wp/issues/2016/12/31/flattening-of-the-phillips-curve-implications-for-monetary-policy-20530)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/31/flattening-of-the-phillips-curve-implications-for-monetary-policy-20530/index.md)
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## Bibliographic details
- Authors: Dora M Iakova
- Published: April 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451866407.001

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### Summary
- Over the past decade, inflation has become less responsive to domestic demand pressures in many industrial countries.
- This development has been attributed, in part, to globalization forces.
- A small macroeconomic model, estimated on UK data using Bayesian estimation, is used to analyze the monetary policy implications of this structural change.
- The focus is on the implications of a globalization-related flattening of the Phillips curve for:
  - the trade-off between inflation and output gap variability, and
  - the efficient monetary policy response rule.

### Model and Methods
- Model type: small macroeconomic model.
- Estimation approach: Bayesian estimation.
- Data: UK data (as used in the model estimation).

### Key Findings
- Inflation has become less responsive to domestic demand pressures in many industrial countries over the past decade.
- This reduced responsiveness is linked, in part, to globalization forces.
- The flattening of the Phillips curve affects:
  - the trade-off between inflation variability and output gap variability, and
  - the design and performance of efficient monetary policy response rules.

### Policy Implications
- Monetary policy must account for a globalization-related flattening of the Phillips curve when evaluating the trade-off between stabilizing inflation and stabilizing the output gap.
- The efficient monetary policy response rule may need to be adjusted in light of a flatter Phillips curve to address the altered inflation-output gap relationship.

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## Content in this bundle

- **1. Optimized Response Rule Coefficients**
  - [1. Optimized Response Rule Coefficients (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp0776.pdf.md){rel="alternate" type="text/markdown"}
  - [1. Optimized Response Rule Coefficients (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp0776.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/flattening-of-the-phillips-curve-implications-for-monetary-policy-20530_