Many economists think the Federal Reserve can use Phillips Curve tradeoffs between inflation and unemployment to guide Fed macro stabilization policy. Inflationary Fed policies may act as a monetary stimulus, to regulate unemployment. Data from 1948 to 1985 indicates that the Phillips Curve doesn’t actually exist. Does the data since 1985 reveal stable Phillips Curve tradeoffs- estimates of the effects of inflation on unemployment that may guide future policies?Monthly inflation data from 1985 to 1992 correlates with unemployment concurrently at a rate of 20% (see figure 7 below). Year over year inflation data from 1985 to 1992 correlates with unemployment at a rate of 52% (see figure 8). The estimate in figure 8 assumes that unemployment rates

The Federal Reserve Board is responsible for formulating macro stabilization policy. More specifically, the Federal Reserve Board seeks tradeoffs between inflation and unemployment rates. Fed officials need meaningful data to formulate useful policies. Data on the unemployment rate that coincides with zero inflation provides a starting point for policy formulation. Fed officials also need data on the rate at which inflation reduces unemployment rates. Finally, data on any correlation between inflation and unemployment rates enables Fed officials to estimate the probability of policy success. What do economists know about all of this?Irving Fisher discovered a tradeoff between unemployment and inflation in the 1920’s.
 Economists did not notice this tradeoff until