reports the estimation results using csi inflation. starting with the linear specification, the full - sample and early - sample results are very similar to 2 / 4 bis central bankers'speeches those using core pce price inflation. this is not altogether surprising since the two series track each other closely during the first half of the sample. the big difference is in the later subsample, where the coefficient on the unemployment gap is not that much smaller than in the early sample, and larger than in the full - sample estimation. moreover, there is little evidence of nonlinearity in the phillips curve relationship in either the full or later samples. evidently, both the flattening of the phillips curve and evidence of nonlinearities depend on including goods and other categories that are primarily influenced by non - cyclical factors. these results suggests that the phillips curve is alive and kicking when inflation is measured using categories that are cyclically sensitive, rather than buffeted by supply and other shocks. based on this analysis, the trade - offs between employment and inflation the fed faces haven ’ t fundamentally changed. that does not imply there have not been meaningful changes in inflation dynamics — inflation persistence has fallen significantly for the csi as well. this means that transitory shocks no longer get embedded in inflation expectations, but instead have relatively short - lived effects on inflation. this is a very favorable development for the economy and monetary policy, which can safely “ look through ” transitory shocks. anchoring inflation expectations at the target this brings me to my second point of the importance of anchoring inflation expectations at the target level. as hms correctly stress, policymakers cannot take for granted that inflation expectations will remain well anchored. they highlight the risk that very tight labor markets could eventually lead to a resurgence of inflation and unmoor expectations, as in the 1960s. i concur that we must remain vigilant regarding a sustained takeoff in inflation. we must be equally vigilant that inflation expectations do not get anchored at too low a level. so far during this expansion, core and overall pce inflation has averaged about 1. 5 percent, well below the fed ’ s 2 percent target. taking a longer perspective, over the past 25 years, core and overall inflation have both averaged 1. 8 percent. this persistent undershoot of the fed ’ s target risks undermining the 2 percent inflation anchor. in this regard, research by ulrike malmendier and stefan nagel is sobering. 6 they find that inflation expectations are

##la, reserves are especially liquid : they can be used to make payments at any time without the need to sell or finance an asset in financial markets, which in a stressed environment might be difficult or costly. as a result, as the aggregate stock of reserves declines over balance sheet normalization, competition among banks may intensify for ways to bolster their measured liquidity position. 26 such increasing competition could affect money markets by increasing the differential between different types of money markets borrowing based on its treatment under the lcr. the lcr determines a bank ’ s expected cash outflows by multiplying the outstanding balances of various categories of liabilities by various supervisory “ runoff rates, ” which are meant to reflect the relative “ stickiness ” of that type of liability. 27 borrowing cash in overnight wholesale markets from another financial institution, such as a bank or a money market mutual fund, does not help a bank ’ s liquidity position as measured by the lcr, because the rule assumes this funding completely runs off during periods of financial stress. 28 however, borrowings from certain other kinds of lenders, such as public - sector entities, foreign central banks, and potter, “ discussion of ‘ evaluating monetary policy operational frameworks ’ by ulrich bindseil, ” august 26, 2016. discussions with banks suggest both the incentives and operational preparedness for large scale interbank unsecured transactions is low. the decrease in reserves is generally matched by an equal increase ( as measured by market value ) in securities under most assumptions. see leonard, martin, and potter, “ how the fed changes the size of its balance sheet, ” july 10, 2017, for a discussion of some technical factors that could result in the values not being exactly the same. from an lcr perspective, reducing agency mbs holdings can affect banks ’ measured lcrs to a moderate extent because agency mbs are level 2 hqla and are counted with an 85 percent weighting. quarles, “ liquidity regulation and the size of the fed ’ s balance sheet, ” may 4, 2018. see liquidity coverage ratio ( lcr ) – executive summary and bech and keister basel iii : the liquidity coverage ratio and liquidity risk monitoring tools, page 73. nonfinancial corporations, receive lower runoff rates, as the lcr rule considers these types of lenders to be “ stickier. ” in particular, borrowing from the fhlbs, the predominant lenders in the federal