For example, Alberto Cavallo has shown how Amazon and other online retailers have fundamentally changed price dynamics for consumer goods, with prices changing more rapidly and more affected by exchange rate changes.2 In today’s globalized and rapidly changing economy, standard reduced-form Phillips curve models that focus primarily on the demand-driven movements in inflation are less relevant. Other factors besides the state of the business cycle dominate price movements for a wide variety of goods. CSI to the Rescue In theory, one could try to modify the model to account of these factors, but for the present purpose, a more straightforward approach is to focus on prices for categories of consumer spending that are less susceptible to supply shocks, international trade, and changing market structure. This approach follows in the tradition of “core” measures of inflation that remove the categories that are particularly prone to supply shocks.3 A number of related measures have been developed along these lines, including work at both the New York and San Francisco Feds.4 In my remarks I will use the “Cyclically Sensitive Inflation” measure, or CSI, developed by Jim Stock and Mark Watson.5 By design, CSI includes the categories that are cyclically sensitive and less prone to measurement error or other non-cyclical drivers. In practice, this measure more heavily weights services with well-measured market-based prices and significantly down-weights goods. Figure 1 compares the four-quarter moving averages of CSI to that of core PCE price inflation, with the shaded regions indicating NBER-dated recessions.

Before I continue, I’ll give the standard Fed disclaimer that the views I express are mine alone and do not necessarily reflect those of the Federal Open Market Committee or anyone else in the Federal Reserve System. Has the Phillips Curve Changed, or Is it a Trick of the Data? Throughout the paper, HMS use a reduced-form Phillips curve regression as a basis for their analysis. For my remarks, I simplify the specification and assume the inflation rate depends on the unemployment gap (and variants thereof), four lags of inflation, and a constant (relative to HMS, I have dropped the import price and inflation expectations terms). 1/4  BIS central bankers' speeches  Overall, the results for the core personal consumption expenditures (PCE) price index inflation using this simplified specification are quite similar to those reported in HMS. The full-sample (1961-2017) estimated coefficients using the core PCE price inflation rate are reported in the first column of the upper part of Table 1. The second column reports results corresponding to the “spline” specification of HMS, where positive values of the unemployment gap are added to the equation to capture asymmetry in the response of inflation to labor market tightness versus slack. The third and fourth columns of Table 1 report the corresponding estimation results for the subsample of 1961-1987, and the final two columns report the results for the subsample 19882017. Like HMS, the latter sample shows far less intrinsic persistence in inflation and a severe flattening of the Phillips curve relative to the full-sample results.