Fed Board, Report: Breaks in the Phillips Curve, Evidence from Panel Data

“Finally, we discuss implications of breaks to the Phillips curve for optimal monetary policy. Breaks to the Phillips curve increases uncertainty about parameter values and we find that this has a notable effect on the optimal policy of a central bank policy maker. Specifically, accounting for breaks leads the policy maker to respond less aggressively to deviations in the unemployment gap but, conversely, respond more aggressively to deviations from target inflation.”