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By John Tamny, RealClearMarkets
The Phillips Curve is the theory that inflation is the result of total demand outstripping total supply at the national level. In a recent speech, Fed vice chairman Donald Kohn said, "A model in the Phillips curve tradition remains at the core of how most academic researchers and policymakers, including this one, think about fluctuations in inflation." And with government measures of inflation presently higher than what is thought allowable by our central bank, he added that "bringing overall inflation immediately back to the low rate consistent with price stability could be associated with a much higher rate of unemployment for a short time."
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