What's Up with the Phillips Curve?

79 Pages Posted: 8 May 2020

See all articles by Marco Del Negro

Marco Del Negro

Federal Reserve Bank of New York

Michele Lenza

European Central Bank (ECB)

Giorgio E. Primiceri

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Andrea Tambalotti

Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: April 2020

Abstract

The business cycle is alive and well, and real variables respond to it more or less as they always did. Witness the Great Recession. Inflation, in contrast, has gone quiescent. This paper studies the sources of this disconnect using VARs and an estimated DSGE model. It finds that the disconnect is due primarily to the muted reaction of inflation to cost pressures, regardless of how they are measured-a flat aggregate supply curve. A shift in policy towards more forceful inflation stabilization also appears to have played some role by reducing the impact of demand shocks on the real economy. The evidence rules out stories centered around changes in the structure of the labor market or in how we should measure its tightness.

JEL Classification: E31, E32, E37, E52

Suggested Citation

Del Negro, Marco and Lenza, Michele and Primiceri, Giorgio E. and Tambalotti, Andrea, What's Up with the Phillips Curve? (April 2020). CEPR Discussion Paper No. DP14583, Available at SSRN: https://ssrn.com/abstract=3594205

Marco Del Negro (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Michele Lenza

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Giorgio E. Primiceri

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

HOME PAGE: http://faculty.econ.northwestern.edu/faculty/primiceri

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Andrea Tambalotti

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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