The Shifting and Steepening of Phillips Curves During the Pandemic Recovery: International Evidence and Some Theory

By Tryggvi Gudmundsson, Chris Jackson, Rafael A Portillo

January 12, 2024

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Tryggvi Gudmundsson, Chris Jackson, and Rafael A Portillo. The Shifting and Steepening of Phillips Curves During the Pandemic Recovery: International Evidence and Some Theory, (USA: International Monetary Fund, 2024) accessed December 21, 2024

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.

Summary

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.

Subject: Business cycles, COVID-19, Economic growth, Economic recession, Health, Inflation, Output gap, Prices, Production

Keywords: Business cycles, COVID-19, Economic recession, Global, Goods price, Inflation, Inflation response, Inflation surge, Output gap, Output-inflation relation, Phillips Curves, Sectoral Phillips curves

Publication Details

Pages:

49
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/007
Stock No:

WPIEA2024007
ISBN:

9798400263446
ISSN:

1018-5941

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