Inflation Dynamics

This paper first outlines the key stylized facts about changes in inflation dynamics in recent years: 1) inflation persistence has declined, 2) the Phillips curve has flattened, and 3) inflation has become less responsive to other shocks. These changes in inflation dynamics are interpreted as resulting from an anchoring of inflation expectations as a result of better monetary policy. The paper then goes on to draw implications for monetary policy from this interpretation, as well as implications for inflation forecasts.