This is a web applet is an adaptation of John Cochrane's Blog, "Is the Fed New Keynesian".

                       

Interest Rates, Inflation & Unemployment

         Expectations are:             Anchored         Unanchored        
    Which Gets More Weight: Unemployment ←→ Inflation         0%    
         Generate Graph    

   

Technical details: 

• The model is a simplified version of the New Keynesian model with a static IS Curve and an expectations-augmented Phillips Curve, as outlined by Cochrane. 
• The anchored inflation expectations model fixes expected inflation at 2%.
• The unanchored expectations model sets expected inflation to current inflation.
• The neutral rate is set to 1%, the slope of the IS and Phillips curves are 0.5, and unemployment is linked to the output gap through Okun's Law as in Cochrane.