Low Inflation Bends the Phillips Curve

36 Pages Posted: 3 May 2019 Last revised: 5 Feb 2020

See all articles by Joseph Gagnon

Joseph Gagnon

Peterson Institute

Christopher G Collins

Board of Governors of the Federal Reserve System

Date Written: April 1, 2019


The Phillips curve, which traces out a negative relationship between inflation and unemployment, has undergone tremendous changes over more than 100 years. Some researchers argue that the slope of the curve in the United States fell substantially around 20 years ago so that unemployment now has little or no effect on inflation. This paper shows that another hypothesis is equally consistent with the data: The Phillips curve may be nonlinear when inflation is low, with the economy having operated in the flat region of the curve for most of the past 20 years. The next few years may be decisive in the debate between these hypotheses, as unemployment has returned to a range in which a nonlinear curve ought to display significant steepness. A flat Phillips curve implies little change in inflation going forward, but a nonlinear curve implies moderate increases in inflation over the next few years.

Keywords: Non-accelerating inflation rate of unemployment (NAIRU), unemployment rate

JEL Classification: E31

Suggested Citation

Gagnon, Joseph and Collins, Christopher G., Low Inflation Bends the Phillips Curve (April 1, 2019). Peterson Institute for International Economics Working Paper No. 19-6, Available at SSRN: https://ssrn.com/abstract=3363928 or http://dx.doi.org/10.2139/ssrn.3363928

Joseph Gagnon (Contact Author)

Peterson Institute ( email )

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Christopher G. Collins

Board of Governors of the Federal Reserve System

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Washington, DC 20551
United States

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