WIlliamson on Fisher, Phillips and Fjords

Steve Williamson has an excellent blog post "Pining for the Fjords" Point 1, the Phillips curve is dead, UK version. (And, too many are cheering, "Long live the Phillips curve!"). Point 2, Steve seems to have signed on to the new-Fisher view that a zero rate fixed for a long time, with apparently credible fiscal policy, will drag inflation slowly down, not up.

Point 1: The Phillips curve in the UK.

Source: Steve Williamson

Steve:

 ...from peak unemployment during the recession, the unemployment rate drops about 2 1/2 points, while the inflation rate drops about 3 points... Presumably utilization has been rising in the U.K., but inflation is dropping like a rock.

See his post for early and late samples, core inflation, etc.

The Phillips curve is not resting, sleeping, or pining for the fjords. It is dead, deceased, passed away. It has bought the farm. Rest in peace.

 Or, borrowing another picture from Steve,

Steve continues

The Bank Rate has been set at 0.5% since March 2009. Here's the latest inflation projection from the Bank: (Inflation returns to 2% now that unemployment has decreased.) So, like Simon, the Bank seems not to have learned that the parrot is dead. In spite of a long period in which inflation is falling while the economy is recovering, they're projecting that inflation will come back to the 2% target.

The best part, which you might miss at the bottom of his post

...20 years of zero-lower-bound experience in Japan and recent experience around the world tell us that sticking at the zero lower bound does not eventually produce more inflation - it just produces low inflation.