in fact, an application of goodhart ’ s law : for example, once monetary policy is responding more effectively to inflationary pressures due to changes in capacity utilisation, the output gap will empirically lose the information content that has qualified it to play the role of a leading indicator. just as a side remark : when it comes to evaluating ex - post the information content of various indicators in forecasting exercises, goodhart ’ s law is, of course, not only relevant for the real economic indicators, but also for monetary ones. the empirical evidence of a flatter phillips curve is a phenomenon that has been documented for several economies, including the united states and the euro area ( see, for instance, bis ( 2006 ) ). but as also stated by mishkin ( 2007 ), the main reason for this is arguably monetary policy having been more successful in stabilising both inflation and output. and here is the point where estimated phillips curves may end up in misguided policy advice when the monetary policy reaction and its effects are not properly taken into account. 1 ) the empirical result that inflation is less responsive to economic shocks and that inflation persistence has lowered could lead monetary policy to be too complacent when it comes to the appropriate response to economic shocks. 2 ) the empirical result of a flatter phillips curve implies a seemingly higher sacrifice ratio. accordingly, the impression that a given reduction in inflation is more costly in terms of output may lead policymakers to be more reluctant to respond to inflationary pressures. but the important point to take into account is that if the dominant structural factors for a flatter phillips curve lie on the side of a more stability - oriented monetary policy in the past, these policy implications may mistakenly induce too lax a monetary policy today. this opens up the possibility of inflation expectations becoming less well anchored and, once this scenario materialises the task of monetary policy becomes much more difficult. 2. 2 inflation dynamics and globalisation it is thus of vital importance for policymakers to draw the right conclusions from the empirical fact that phillips curves have changed. i have argued that the main reason is likely to be found in a more stable monetary policy regime in many countries. to be more precise, it might be because increased credibility of central banks has anchored inflation expectations, thereby also reducing the volatility of actual inflation. moreover, lower trend inflation has reduced the frequency of nominal price adjustment. additionally, goodhart ’ s law might have come into play. apart from this

area that would benefit from further research. how much do people rely on the immediate past in forming expectations about the future? to what extent are projections from the past modified by what they know about the goals of the central bank or the stage and characteristics of the current economic cycle? how often do expectations get updated, and what types of information are used in the process? * * * this is a daunting research agenda, but it should be given a high priority. i appreciate the opportunity to spell it out before an audience that has the skills and the opportunity to address some of these pressing questions. kenneth s. rogoff ( 2003 ), " globalization and global disinflation, " in monetary policy and uncertainty : adapting to a changing economy, proceedings of a symposium sponsored by the federal reserve bank of kansas city, august 28 - 30 ( kansas city : federal reserve bank of kansas city ), pp. 77 - 112 ; alan greenspan ( 2005 ), " globalization, " speech presented to the council on foreign relations, march 10.