Prospects for Inflation in a High Pressure Economy: is the Phillips Curve Dead or is it Just Hibernating?

66 Pages Posted: 7 May 2019

See all articles by Peter Hooper

Peter Hooper

Deutsche Bank Securities, Inc. - Global Markets Research, Economy

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Amir Sufi

University of Chicago - Booth School of Business; NBER

Date Written: May 2019

Abstract

This paper reviews a substantial range of empirical evidence on whether the Phillips curve is dead, i.e. that its slope has flattened to zero. National data going back to the 1950s and 60s yield strong evidence of negative slopes and significant nonlinearity in those slopes, with slopes much steeper in tight labor markets than in easy labor markets. This evidence of both slope and nonlinearity weakens dramatically based on macro data since the 1980s for the price Phillips curve, but not the wage Phillips curve. However, the endogeneity of monetary policy and the lack of variation of the unemployment gap, which has few episodes of being substantially below zero in tis sample period, makes the price Phillips curve estimates from this period less reliable. At the same time, state level and MSA level data since the 1980s yield significant evidence of both negative slope and nonlinearity in the Phillips curve. The difference between national and city/state results in recent decades can be explained by the success that monetary policy has had in quelling inflation and anchoring inflation expectations since the 1980s. We also review the experience of the 1960s, the last time inflation expectations became unanchored, and observe both parallels and differences with today. Our analysis suggests that reports of the death of the Phillips curve may be greatly exaggerated.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Hooper, Peter and Mishkin, Frederic S. and Sufi, Amir, Prospects for Inflation in a High Pressure Economy: is the Phillips Curve Dead or is it Just Hibernating? (May 2019). NBER Working Paper No. w25792. Available at SSRN: https://ssrn.com/abstract=3383291

Peter Hooper (Contact Author)

Deutsche Bank Securities, Inc. - Global Markets Research, Economy ( email )

60 Wall Street
Mail Stop: NYC60-1815
New York, NY 10005
United States

Frederic S. Mishkin

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Amir Sufi

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
10
Abstract Views
90
PlumX Metrics