Fed paper presents improved model of inflation and unemployment

federal reserve

A discussion paper published by the Federal Reserve on November 9 proposes a bivariate model of inflation and unemployment that the authors say unusually trumps models using univariate benchmarks.

The model allows for persistent variation in trend inflation and the non-accelerating inflation rate of unemployment (nairu), and consists of five unobserved components with stochastic volatility.

The authors, Andrea Stella and James Stock, find the Phillips curve – which represents the inverse

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