The Slope of the Phillips Curve: Evidence from U.S. States
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 slope of the Phillips curve is small and was small 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.
We would like to thank Tomas Breach, Massimiliano Cologgi, and Victoria de Quadros for excellent research assistance. We thank John Molino, our project coordinator at the BLS, for all his help throughout the project. We thank Hassan Afrouzi, Regis Barnichon, Olivier Blanchard, Yuriy Gorodnichenko, Pierre-Olivier Gourinchas, Greg Kaplan, Chen Lian, Silvana Tenreyro, John Williams and seminar participants at various institutions for valuable comments and discussions. We thank the National Science Foundation, the Alfred P. Sloan Foundation, the Smith Richardson Foundation, the Institute for New Economic Thinking, and the Julis-Rabinowitz Center for Public Policy and Finance for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Jonathon Hazell & Juan Herreño & Emi Nakamura & Jón Steinsson, 2022. "The Slope of the Phillips Curve: Evidence from U.S. States," The Quarterly Journal of Economics, vol 137(3), pages 1299-1344. citation courtesy of