## Has the Phillips Curve Become Steeper?

_IMF Working Papers, May 12, 2023_

## Source details

**Canonical URL:** [Has the Phillips Curve Become Steeper?](https://www.imf.org/en/publications/wp/issues/2023/05/12/has-the-phillips-curve-become-steeper-533315)

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## Bibliographic details
- Authors: Anil Ari, Daniel Garcia-Macia, Shruti Mishra
- Published: May 12, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400242915.001

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### Research question and scope
- Examines whether structural changes after the pandemic have steepened Phillips curves in advanced economies, reversing the flattening observed in recent decades and reducing the sacrifice ratio associated with disinflation.
- Uses granular price quote data for the UK and sectoral data from 24 advanced economies in Europe.
- Authors: Anil Ari, Daniel Garcia-Macia, Shruti Mishra.
- Date: May 12, 2023.

### Key empirical findings
- UK granular price quote analysis:
  - Increased digitalization may have raised price flexibility.
  - De-globalization may have made inflation more responsive to domestic economic conditions again.
- Cross-country/sectoral evidence (24 advanced economies in Europe):
  - Higher digitalization and lower trade intensity are associated with steeper Phillips curves.
- Post-pandemic Phillips curve estimates:
  - Indicate some steepening in the UK, Spain, Italy and the euro area as a whole.
  - The magnitudes of steepening are too small to explain the entire surge in inflation in 2021–22, implying an important role for outward shifts in the Phillips curve.

### Interpretations and implications
- Mechanisms identified:
  - Digitalization → increased price flexibility (firms adjust prices more frequently or responsively).
  - De-globalization → greater sensitivity of domestic inflation to domestic economic slack (stronger domestic link between output gap and inflation).
- Policy-relevant implication:
  - While modest steepening of Phillips curves may reduce the sacrifice ratio for disinflation somewhat, it does not fully account for the 2021–22 inflation surge; policy responses should consider both slope changes and possible outward shifts in the Phillips curve.

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2023/05/12/has-the-phillips-curve-become-steeper-533315_