What's Up with the Phillips Curve?

80 Pages Posted: 2 Jul 2020

See all articles by Del Del Negro

Del Del Negro

affiliation not provided to SSRN

Michele Lenza

European Central Bank (ECB)

E. E. Primiceri

affiliation not provided to SSRN

Date Written: July, 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

Negro, Del Del and Lenza, Michele and Primiceri, E. E., What's Up with the Phillips Curve? (July, 2020). ECB Working Paper No. 20202435, Available at SSRN: https://ssrn.com/abstract=3641427

Del Del Negro (Contact Author)

affiliation not provided to SSRN

No Address Available

Michele Lenza

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

E. E. Primiceri

affiliation not provided to SSRN

No Address Available

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