It’s Baaack: The Surge in Inflation in the 2020s and the Return of the Non-Linear Phillips Curve

This paper proposes a non-linear New Keynesian Phillips curve (Inv-L NK Phillips Curve) to explain the surge of inflation in the 2020s. Economic slack is measured as firms' job vacancies over the number of unemployed workers. After showing empirical evidence of statistically significant nonlinearities, we propose a New Keynesian model with search and matching frictions, complemented by a form of wage rigidity, in the spirit of Phillips (1958), that generates strong nonlinearities. Policy implications include the thesis that appropriate monetary policy can bring inflation down without a significant recession and that the recent inflationary surge was mostly generated by a labor shortage -- i.e. an exceptionally tight labor market.

Donderdag 01 juni 2023, 14:45 - 15:30
Nationale Bank van België, KU Leuven, UAntwerpen, UCLouvain, UGent, ULB, ULiège, UNamur en VUB
Gauti B. Eggertsson (Brown University) co-authored with Pierpaolo Benigno
Faculty of Economics and Business KU Leuven (Room HOGM 01.85), entrance: Naamsestraat 69, 3000 Leuven