Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Fed Study Confirms Phillips Curve Is Useless: Admitting The Bloody Obvious

Courtesy of ZeroHedge. View original post here.

Authored by Mike Shedlock via MishTalk.com,

The Phillips Curve, an economic model developed by A. W. Phillips purports that inflation and unemployment have a stable and inverse relationship.

This has been a fundamental guiding economic theory used by the Fed for decades to set interest rates.

A new Fed Study shows the Phillips Curve Doesn’t Work.

A fundamental relationship of mainstream economic theory at the heart of the Federal Reserve’s strategy for setting interest rates has been a poor guide for policy makers for at least three decades, according to a study by the Philadelphia Fed’s top-ranking economist.

The paper, co-authored by Philadelphia Fed Director of Research Michael Dotsey, shows that forecasting models based on the so-called Phillips curve, which asserts a link between unemployment and inflation, don’t actually help predict inflation.

“Our results indicate that monetary policymakers should at best be very cautious in their reliance on the Phillips curve when gauging inflationary pressures,” Dotsey and Philadelphia Fed economists Shigeru Fujita and Tom Stark wrote.

Their study is timely. Fed officials have been surprised by a deceleration in U.S. inflation over the past several months despite a continued decline in unemployment, the opposite of what the Phillips curve relationship would predict.

The Philadelphia Fed economists found that rising unemployment was sometimes able to help predict lower inflation, but falling unemployment didn’t help predict higher inflation. They noted that was particularly the case during the 1970s and early 1980s when the Fed responded to runaway inflation by raising rates so high that the U.S. economy fell into recession.

“Our evidence may indicate that using the Phillips curve may add value to the monetary policy process during downturns, but the evidence is far from conclusive,” they wrote. “We find no evidence for relying on the Phillips curve during normal times, such as those currently facing the U.S. economy.”

Admitting the Obvious

That report is not surprising at all other than a Fed researcher would finally admit the obvious.

However, the FOMC members will keep using the model, despite the study, and despite the obvious.

Absurd Inflation Discussion

A few days ago, in response to Absurd Inflation Discussion by Fed Jackasses, Pater Tenebrarum at the Acting Man blog pinged me with this comment:

“It is de facto not possible to measure price inflation or a general level of prices. The latter is simply nonsense, it doesn’t exist. Both money and goods are subject to changes in supply and demand, hence there is no yardstick by which the purchasing power of money could be measured. And this is before we get to the fact that adding up and averaging the prices of disparate goods simply makes no logical sense.”

So, not only is the Phillips Curve useless at predicting inflation, one cannot properly measure inflation in the first place.

None of the models the Fed relies on works. Repetitive bubbles are proof enough.

Yes Virginia, there is inflation. Central banks don’t see it because they are clueless about how to measure it.https://t.co/ek7Y4jB9R6

— Mike Mish Shedlock (@MishGEA) August 3, 2017

Unemployment vs CPI 

Pater Tenebrarum at the Acting Man Blog emailed this chart.

Back in March, Janet Yellen commented: “The Phillips Curve is Alive“.

An Acting Man article by MN Gordon entitled  Why Janet Yellen is Toast blasted that bit of nonsense.

Since Phillips first derived the Phillips Curve there have been lengthy episodes that are inconsistent with his original findings.  Particularly, the late 1970s – when inflation and unemployment went vertical in tandem.

How could it be that both went up at once?  Weren’t they mutually exclusive?  According to the Phillips Curve this was impossible.  Yet it happened all the same.  In short, the Phillips Curve is a BS theory.

The fact that Yellen still spews this nonsense is intolerable and insulting.  This, among other reasons, is why she is toast.  Her four-year appointment is set to end in February 2018.  We suspect she won’t make it much past the next Presidential inauguration.

Brandolini’s Law

It’s not just the Phillips Curve either. Keynes thought inflation and recession could not happen at the same time. Yet, people still cling to that too.  This leads to:

The bullshit asimmetry: the amount of energy needed to refute bullshit is an order of magnitude bigger than to produce it.

— Alberto Brandolini (@ziobrando) January 11, 2013

Creative Nonsense

Those hoping to solve the inflation puzzle can do so here: Central Banks Puzzled as Global Inflation Hits Lowest Level Since 2009: Solving the Puzzle.

Also consider “Oh That Elusive” Inflation!

Those seeking to mock Cleveland Fed creative nonsense may wish to consider: “Idiosyncratic and Transitory Factors” Holding Down Inflation: New Definition of Transitory

As protection against Fed policies, it’s wise to own some gold. In case you missed it, please consider How Much Gold Should the Common Man Own?


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!





You must be logged in to make a comment.
You can sign up for a membership or get a FREE Daily News membership or log in

Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!