Front Matter Page
Research Department
Authorized for distribution by Tamim Bayoumi
Contents
I. Introduction
II. A Simple Model of the Unemployment-Inflation Process
A. Alternative Models for the Phillips Curve
B. Alternative Models for Inflation Expectations
C. Some Implications of Alternative Values for Policy Credibility
D. Inflation, Unemployment, and A Measure of Policy Credibility: An Example from the United Kingdom
E. How Reliable Are the Measures of Credibility Based on Long-Term Nominal Bond Yields Likely to Be?
F. Unemployment Dynamics and Model-Consistent Measures of the NAIRU
III. Empirical Results
IV. Sensitivity Analysis
V. Conclusions
References
Figures
1. Inflation Expectations 10 Years Ahead
2. Response of Inflation to Unemployment Gaps Under Various Degrees of Constant Policy Credibility
3. Response of Inflation to Unemployment Gaps Under Time-Varying Degrees of Policy Credibility
4. United Kingdom: Credibility Measures and Regime Classifications
5a. Root-Mean-Square-Errors for Inflation from the Conventional Model
5b. Root-Mean-Square-Errors for Unemployment from the Conventional Model
6a. Root-Mean-Square-Errors for Inflation from the General Model
6b. Root-Mean-Square-Errors for Unemployment from the General Model
7a. Ratio of Root-Mean-Square-Errors for Inflation
7b. Ratio of Root-Mean-Square-Errors for Unemployment
8. Beta and Omega Estimates, and Sacrifice Ratios
Tables
1. A Simple Model of the Unemployment-Inflation Process
2. Sources of Variability in 10-Year Government Bond Yields: Some Evidence from Data Derived from Conventional and Indexed Bonds in the United Kingdom
3. Correlation Between Real Interest Rates and Inflation Expectations Derived from U.K. Conventional and Indexed Bonds at Different Maturities
4. Base-Case Average Model Results for the Four Models