Friedman (1977) provides an intuitive explanation for a positive slope while Berentsen, Menzio and Wright (2011) derive it formally in a New Monetarist model. 2  -4Inflation targeting provided a framework for making promises of low inflation credible, and since the late 1990s it has proved to be very successful in practice.
With a central bank strongly committed to inflation targeting, promises to keep inflation at 2 percent are credible in large part because the central bank is observed taking action to keep it near 2 percent, regardless of what is happening to the unemployment rate. When these promises are credible, the Phillips curve should be relatively flat. What have we seen in the recent data?