Afternoon Must-Read: Yifan Cao and Adam Shapiro: Will Inflation Remain Low?

Yifan Cao and Adam Shapiro:Will Inflation Remain Low?: “The well-known Phillips curve suggests that future inflation depends…

…on current and past inflation and a measure of economic slack or resource utilization. Using the unemployment gap to measure slack, a simple Phillips curve currently predicts that inflation will remain quite low through 2015. Two variations of the model, which impose a higher anchor for inflation expectations or focus only on a short-term unemployment gap, still predict that inflation will remain low, albeit higher than implied by the basic model.