We analyze the impact of shifts in the industrial composition of the economy on the distribution of the frequency of price change and its consequences for the slope of the Phillips curve for the United States. By combining product-level microdata on the frequency of price change with data on industry shares from 1947 through 2019, we document that shifts in industrial composition led to a gradual reduction in the median monthly frequency of price change from 9.2 percent in 1947 to 6.9 percent in 2019. Other percentiles of the distribution of the frequency of price change show similar reductions. These declines were broadly driven by a shift in the industrial composition of the economy from primary and secondary industries toward service industries. In a calibrated multisector general equilibrium menu cost model, we find that this effect flattened the Phillips curve by 28.5 percent from 1947 to 2019. However, despite a flatter Phillips curve, persistent shocks to aggregate demand still can cause significant inflation.

Many economists have proposed raising the inflation target to reduce the probability of hitting the zero lower bound (ZLB). It is both a common assumption and a feature of standard models that raising the inflation target does not impact the equilibrium real rate. I demonstrate that in the New Keynesian model, once heterogeneity is introduced, raising the inflation target causes the equilibrium real rate to fall. This implies that raising the inflation target will increase the nominal interest rate by less than expected and thus will be less effective in reducing the probability of hitting the ZLB. The channel involves a rise in the inflation target lowering the average markup by price rigidities and a fall in the average markup lowering the equilibrium real rate by household heterogeneity, which could come from overlapping generations or idiosyncratic labor shocks. I find that raising the inflation target from 2 percent to 4 percent lowers the equilibrium real rate between 3 and 28 basis points. Since raising inflation lowers the equilibrium real rate, it might seem optimal to raise inflation by more in response to the ZLB. However, this channel also implies that the marginal benefit of raising inflation is lower because a given increase in inflation raises the nominal interest rate by less and thus is less effective at preventing the ZLB. In a welfare simulation, these two effects approximately cancel out each other. Therefore, even though this channel implies that raising the inflation target is less effective in preventing the ZLB, the inflation target should still be raised by a similar amount in response to the problem of the ZLB.

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The importance of central bank information effects is the subject of an ongoing debate. Most work in this area focuses on the limited number of monetary policy events at the Federal Reserve. I assess the degree to which nine other central banks cause information effects. This analysis yields a much larger panel of primarily novel events. Following a surprise monetary tightening, economic forecasts improve in line with information effects. However, I find this outcome is driven by the predictability of monetary policy surprises and not information effects. My results support the view that central bank information effects may be overstated.