In the absence of such new statutory authority, the Fed has indicated it might need to alter the way it implements monetary policy, in the event that required reserve balances fell further and the volatility of the funds rate increased. To date, because the volatility of the funds rate has not increased, moving in this direction has not been necessary.
2 However, the empirical evidence for this linkage is less definitive than we would like. 3 This mixed evidence is one reason that much Phillips curve analysis has centered on price-price equations with no explicit role for wages. 4 Problems in the measurement of labor costs may help explain the absence of a clearer empirical relationship between labor costs and prices.