How Curvy is the Phillips Curve?

Philip Bunn; Lena Anayi; Emily Barnes; Nicholas Bloom; Aaron Jalca; Paul Mizen; Gregory Thwaites; Ivan Yotzov

doi:10.3386/w33234

How Curvy is the Phillips Curve?

Philip Bunn, Lena Anayi, Emily Barnes, Nicholas Bloom, Aaron Jalca, Paul Mizen, Gregory Thwaites & Ivan Yotzov

Working Paper 33234

DOI 10.3386/w33234

Issue Date December 2024

Revision Date July 2026

Macro evidence suggests a convex relationship between inflation and slack, but causal identification is challenging. Using large firm-panel surveys in the UK and US, we show that price responses to demand shocks are convex at the firm level, across hypothetical survey shocks, realised sales shocks, and COVID-induced demand shocks. Convexity is strongest when firms and industries face higher inflation, fades beyond two years, and applies to cost shocks. We rationalise these findings with a menu-cost model in which trend inflation moves firms closer to price-increase thresholds. We estimate that this nonlinearity explains about one quarter of the 2022 inflation overshoot.

The authors would like to thank Jose Barrero, Steve Davis, Kevin Foster, Brent Meyer, and Emil Mihaylov for the US data from the Survey of Business Uncertainty and the Business Inflation Expectations survey, and the Economic and Social Research Council for funding under grant ES/X013707/1. The authors also benefited from comments by seminar participants in Banca d’Italia, Boston College, Bristol, Chicago, Chicago Fed, the IMF, LSE, Northwestern, Nottingham, Princeton, Sciences Po, Stanford, UCL, Warwick, Zurich, and the ASSA, BCEA CBBS, CCA, CEBRA, ECB, EEA ICEA, MMF, NBER, RES, SITE and SUERF conferences. Any views expressed are solely those of the authors and so cannot be taken to represent those of the National Bureau of Economic Research, Federal Reserve Bank of Atlanta, Bank of England or to state Bank of England policy. This paper should therefore not be reported as representing the views of the Bank of England or members of the Monetary Policy Committee, Financial Policy Committee, or Prudential Regulation Committee.

Nicholas Bloom
I worked for McKinsey and company as a management consultant from 2001-2002. I have not received any funding from them after that time.

I am part of the Toulouse Network for Information Technology, which carries out research on IT and productivity. From this network I receive an annual honorarium, which is funded by Microsoft.

I do occasional consulting on management practices for government and policy agencies, like the Canadian Government, the World Bank, the European Union, the British Government, and the European Bank of Reconstruction and Development.

I produced a report in 2008 for the World Economic Forum on management practices in private equity for which I received an honorarium.

I am a paid speaker at corporate events at which I discuss among other things working from home, management practices and policy uncertainty.
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Philip Bunn, Lena Anayi, Emily Barnes, Nicholas Bloom, Aaron Jalca, Paul Mizen, Gregory Thwaites, and Ivan Yotzov, "How Curvy is the Phillips Curve?," NBER Working Paper 33234 (2024), https://doi.org/10.3386/w33234.

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How Curvy is the Phillips Curve?

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