Friedman vs Phillips: a historic divide

Milton Friedman and Bill Phillips most likely assumed that their separate methods for predicting inflation would lead to much the same outcomes. Recently, however, monetary aggregates and the Phillips curve have provided extremely disparate signals. This column discusses recent economic developments leading to these disparate signals, concluding that inflation will most likely end up somewhere between the predictions of the two models – which is almost certainly higher than what central banks and the IMF are expecting.