The pressures on monetary expansion in the earlier part of targeting exercise emanated from monetisation of fiscal deficit and later on from capital inflows.
As a result, in most models of nominal rigidities the long-run Phillips curve is vertical. 2 What do economic data tell us about this relationship? We all know that if you simply plot inflation against the unemployment rate over the past 50 years, you get a blob. There does not appear to be any statistically significant correlation between the two series.