The Evolution of the U.S. Output-Inflation Tradeoff

This paper proposes quantifying the evolution of the U.S. output-inflation tradeoff using a Time-Varying Parameter Structural VAR. This methodology circumvents issues with existing methods which tend to be either reduced form in nature or rely on more ad hoc assumptions regarding sample split dates and both trend output and trend inflation. Working through U.S. data since the 1970s reveals only a slight change in the tradeoff from around 1.70 to 1.75 percentage points of real output growth per percentage point increase in trend inflation. This contrasts with claims that the U.S. Phillips Curve has flattened dramatically.