Essays on Phillips Curve

Answer 1: The factors that influence the Fed's balance sheet are its assets and liabilities. In assets Fed hold securities like U.S Treasury which is controlled by open market operations. Then the foreign exchange reserves issued by the foreign governments. The SDR(special drawing rights) and gold are official asset, other Federal Reserve asset and the discount loan. In liabilities, the currency in circulation, the reserves i.e. the accounts with commercial bank , government accounts and other liabilities which mainly consist of reserve repo rate. The asset that has increased Fed balance are purchase of treasury and mortgage bonds(Kearns). ...

Assignment 4

1. The Phillips Curve (a) The Output Gap and the Inflation Rate series are shown in figure 1. Using the Excel formula “=correl”, we find the correlation between these two variables to be -0.00206. The correlation coefficient ranges from -1 to 1, the closer the coefficient is to the extremes, the stronger is the linear relationship between the two variables. In this case, the correlation coefficient is close to zero, so there is almost no relationship between Ygap and Pi. Figure 1

The Output Gap and the Inflation Rate series in 1955 – 2015

(b) Figure 2 shows the Output Gap and the change in the Inflation Rate series. Again, using ...

This problem is however not new to regulators who have an interest in limiting both factors. This relationship between unemployment and inflation is shown in the Philips curve which is declining in the short term. There seems to be a clear inverse relationship between the two factors in the short term. (Brinner, 1999). However, this apparent relationship ceases in the long run with the two being more or less independent of each other. The Federal Reserve is thus acting on a well established economic theory that interventions aimed at countering inflation are only effective in the short term. Meltzer is ...