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Home Banking Central banks and Phillips curve unmooring from past certainties

Central banks and Phillips curve unmooring from past certainties

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Friday 25 March 2022 – Vol.13 Ed.12.5

Commentary: Central bankers will become heroes by retreating from inflation fray

By David Marsh in London

Central bankers look ready to retreat from a frontal assault on inflation – stepping diplomatically away from the purest interpretation of their mandates. Far from attracting opprobrium, they will gain popularity. Experts have long predicted that the age of independent central banks is over. Bowing to political pressures to keep interest rates under control is one way of losing independence – and is a lot less painful than forcing up rates and living with the consequences.

Read the full commentary on the website.

Commentary: US employment polarisation tempers worker power and inflation

By Julian Jacobs in London

Will tight labour markets in the US contribute to inflation? At the centre of this problem is the Phillips curve, describing the trade-offs between inflation and unemployment. Yet the Phillips curve appears to have completely disappeared – tight labour markets that followed the 2008 financial crisis were not associated with wage gains or inflation. This has left economists to wonder how pronounced the relationship between labour markets and inflation really is.

Read the full commentary on the website.

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