The Phillips Multiplier


We propose a model-free approach for determining the inflation-unemployment trade-off faced by a central bank, i.e., the ability of a central bank to transform unemployment into inflation (and vice-versa) via its interest rate policy. We introduce the Phillips multiplier as a statistic to non-parametrically characterize the trade-off and its dynamic nature. We compute the Phillips multiplier for the US, UK and Canada and document that the trade-off went from being very large in the pre-1990 sample period to being small (but significant) post-1990 with the onset of inflation targeting and the anchoring of inflation expectations.