Monetary policy effects and inflation expectations have shifted over time

What the study found: The study finds that the effects of U.S. monetary policy on inflation have strengthened over time, while the Phillips curve — the relationship between inflation and economic slack such as unemployment — has flattened for much of the pre-pandemic period. It also finds a diminished pass-through from short-horizon to long-horizon inflation expectations, which the authors describe as consistent with more firmly anchored expectations and improved policy credibility.
Why the authors say this matters: The authors conclude that the Phillips curve dynamics are regime dependent, and the findings indicate that the transmission of monetary policy has evolved since inflation targeting. The study suggests these changes matter for understanding how inflation, expectations, and policy interact over time.
What the researchers tested: The researchers used a machine learning framework based on time-varying parameter local projections estimated with ridge regression. They used this approach to assess the evolving transmission of U.S. monetary policy since inflation targeting, while accounting for gradual shifts in macroeconomic relationships and heteroskedasticity across parameters.
What worked and what didn't: The analysis showed stronger time-varying effects of monetary policy on inflation and a flatter Phillips curve over much of the pre-pandemic period. It also found a temporary steepening of the Phillips curve during the post-pandemic inflation surge. The results further indicated reduced pass-through from short- to long-horizon inflation expectations.
What to keep in mind: The abstract does not describe specific data sources, sample periods, or detailed limitations. The summary is limited to the effects and relationships explicitly reported in the abstract.

Key points

• U.S. monetary policy effects on inflation are reported to have strengthened over time.
• The Phillips curve is reported to have flattened for much of the pre-pandemic period.
• Pass-through from short-horizon to long-horizon inflation expectations is reported to have diminished.
• The authors describe the reduced pass-through as consistent with more firmly anchored expectations and improved policy credibility.
• A temporary steepening of the Phillips curve was documented during the post-pandemic inflation surge.