NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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What's up with the Phillips Curve?

Marco Del Negro, Michele Lenza, Giorgio E. Primiceri, Andrea Tambalotti

NBER Working Paper No. 27003
Issued in April 2020
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics

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.

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Document Object Identifier (DOI): 10.3386/w27003

 
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