A simple empirical model describing how U.S. inflation dynamics have evolved over the post-WWII period is constructed; the results are used to evaluate various interpretations and theories of the inflation process. Changes in the slope of the price Phillips curve and the relative stability of the wage Phillips curve are documented. Macro and micro evidence for the empirical role of inflation expectations in the inflation process is critiqued. The chapter also discusses supply shocks and whether there was "missing disinflation" after the 2007-2009 recession. Finally, empirical measures of aggregate price-cost margins are compared.

The focus on supply shocks may have obscured the importance of such other factors as institutions, ideas, culture, leaders, and human agency. Certainly these can lead to bad outcomes – bad leaders usually produce bad outcomes – but with rare exceptions they matter only at the margins. Elites will use established institutions to maintain their position against an adverse shock, but those institutions will yield to a big enough shock. Institutions, then, are endogenous, as are leaders (bad ones are overthrown or defeated) and human agency (although crowds, especially acting through markets, are usually wiser than individuals). The salient exceptions are culture and systemic ideas. We have convincing examples of how initially adaptive cultural traits – e.g., of male supremacy or interpersonal distrust – can persist over generations and affect how societies respond to shocks. And systemic ideas about how the world works can prescribe bad or good ways of responding to a crisis such as the Great Depression. Institutions, ideas, culture, leaders, or human agency clearly matter, but supply shocks almost always matter more.