The Shifting and Steepening of Phillips Curves During the Pandemic Recovery: International Evidence and Some Theory
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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.
Series:
Working Paper No. 2024/007
Subject:
Business cycles COVID-19 Economic growth Economic recession Health Inflation Output gap Prices Production
Frequency:
regular
English
Publication Date:
January 12, 2024
ISBN/ISSN:
9798400263446/1018-5941
Stock No:
WPIEA2024007
Format:
Paper
Pages:
49
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