The Slope of the Phillips Curve: Evidence from U.S. States

72 Pages Posted: 27 Oct 2020

See all articles by Jonathon Hazell

Jonathon Hazell

Massachusetts Institute of Technology (MIT)

Juan Herreno

Columbia University, Graduate School of Arts and Sciences, Department of Economics

Emi Nakamura

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

Jón Steinsson

Columbia University

Date Written: October 2020

Abstract

We estimate the slope of the Phillips curve in the cross section of U.S. states using newly constructed state-level price indexes for non-tradeable goods back to 1978. Our estimates indicate that the Phillips curve is very flat and was very flat even during the early 1980s. We estimate only a modest decline in the slope of the Phillips curve since the 1980s. We use a multi-region model to infer the slope of the aggregate Phillips curve from our regional estimates. Applying our estimates to recent unemployment dynamics yields essentially no missing disinflation or missing reinflation over the past few business cycles. Our results imply that the sharp drop in core inflation in the early 1980s was mostly due to shifting expectations about long-run monetary policy as opposed to a steep Phillips curve, and the greater stability of inflation since the 1990s is mostly due to long-run inflationary expectations becoming more firmly anchored.

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Suggested Citation

Hazell, Jonathon and Herreno, Juan and Nakamura, Emi and Steinsson, Jón, The Slope of the Phillips Curve: Evidence from U.S. States (October 2020). NBER Working Paper No. w28005, Available at SSRN: https://ssrn.com/abstract=3718917

Jonathon Hazell (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

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Juan Herreno

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

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Emi Nakamura

Columbia Business School - Finance and Economics ( email )

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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Jón Steinsson

Columbia University ( email )

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New York, NY 10027
United States

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