Nonlinear Phillips Curves Article Swipe
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· 2024
· Open Access
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· DOI: https://doi.org/10.17016/2380-7172.3596
· OA: W4402437731
The slope of the Phillips curve flattened around the turn of the century. The slope, however, is also kinked (nonlinear) such that it is steeper in a tight labor market than in a more normal one. The magnitude of this kink means that the flattening of the Phillips curve around the turn of the century has not changed much the slope in a tight labor market. This holds for both price and wage Phillips curves and for both the United States (US) and the European Union (EU). Our findings are relevant to policy debates about the costs and benefits of a running a hot labor market. Monetary policy-makers face a fundamentally different inflation-unemployment tradeoff in tight labor markets compared with looser labor markets and should consider this when setting policy.
