Inflation and Unemployment: A Layperson's Guide to the Phillips Curve
by Jeffrey M. Lacker and John A. Weinberg
A slowing economy and rising inflation are typically understood to require opposite policy responses: lowering the short-term interest rate to counter slower real growth while raising the rate to tame inflation. What, then, is the relationship between growth and inflation and how is it related to monetary policy? Jeff Lacker, Richmond Fed President, and John Weinberg, Research Director and Senior Vice President, explore this question by looking at the history of the Phillips curve – the statistical relationship between inflation and unemployment.
You can find the full text of this article and others in the latest issue of Economic Quarterly at the Bank's Web site.
Also in the Summer 2007 issue:
The Economic Quarterly is a free publication containing economic analysis pertinent to Federal Reserve monetary and banking policy. For free copies or more information, contact the Federal Reserve Bank of Richmond's Public Affairs office at 804.697.7982.
The Richmond Fed serves the Fifth Federal Reserve District, which includes the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and most of West Virginia. As part of the nation's central bank, we're one of 12 regional Reserve Banks that work together with the Federal Reserve's Board of Governors to strengthen the economy and our communities. We manage the nation's money supply to keep inflation low and help the economy grow. We also supervise and regulate financial institutions to help safeguard our nation's financial system and protect the integrity and efficiency of our payments system.