The disappearance of Phillips curve effects, inflation targeting and asset price instability (indeterminacy)

First, we show the major weakening of Phillips curve effect s (the effect of unemployment on inflation) in OECD countries. We then show that if Phillips curve effects are weak, if central banks nevertheless continue to target inflation and if there are wealth effects, then there is instability in asset prices (equities, real estate, etc.). Instability here means that any asset price is an equilibrium price, that asset prices are indeterminate. In other words, asset values can become absurd, but they are still correct equilibrium values. To avoid this instability, the only solution is for central banks to abandon inflation targeting and react to rising asset prices. If they refuse to do so, asset prices will be left to move in a totally disorderly and unpredictable fashion .