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The Shifting and Steepening of Phillips Curves During the Pandemic Recovery: International Evidence and Some Theory
Author:
Tryggvi Gudmundsson
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Chris Jackson
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Rafael A Portillo
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Series:
IMF Working Papers
Volume/Issue:
Volume 2024: Issue 007
Language:
English
Publication Date:
12 Jan 2024
DOI:
https://doi.org/10.5089/9798400263446.001
ISBN:
9798400263446
ISSN:
1018-5941
Pages:
49
Keywords:
Inflation; Phillips Curves; COVID-19; inflation surge; output-inflation relation; sectoral Phillips curves; inflation response; goods price; Output gap; Business cycles; Economic recession; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We study the global inflation surge during the pandemic recovery and the implications for aggregate and sectoral Phillips curves. We provide evidence that Phillips curves shifted up and steepened across advanced economies, and that differences in the inflation response across sectors imply the relative price of goods has been pro-cyclical this time around rather than a-cyclical as during previous cycles. We show analytically that these three features emerge endogenously in a two-sector new-Keynesian model when we introduce unbalanced recoveries that run against a supply constraint in the goods sector. A calibrated exercise shows that the resulting changes to the output-inflation relation are quantitatively important and improve the model's ability to replicate the inflation surge during this period.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund