If real short-term interest rates fail to increase, monetary policy will be ineffective in dealing with high inflation. In the United States, a systematic failure to uphold the Taylor principle was one of the key factors contributing to the persistence of inflation in the 1970s.
In other words, a flattening of the Phillips curve could be confused with a mismeasurement of slack or a parallel shift of the complete curve. Indeed, there is considerable uncertainty regarding the degree of slack in the economy. One reason for this is that productive capacities may have been positively affected by labour market reforms.