Time-varying coefficients and NAIRUs are also used. So, pragmatically adjusted, hybrid NKPCs can be made to work, especially for core inflation. This specification is quite distant from the initial pretensions of the NKPC and from rationale of DSGE models where everything is microfounded and subject to rational expectations. The two strands of the literature identified by Robert Gordon seem to have undertaken some convergence.
An important source of the Phillips curve’s poor performance can be the mis-measurement of the output gap and the NAIRU. An important part of the under-prediction of inflation in recent years may be the result of an underestimation of the slack in the economy.