Title

The Slope of the Phillips Curve: Evidence from U.S. States

Author(s)

Jonathon Hazell Jonathon Hazell (Princeton University and LSE)

Juan Herreno Juan Herreno (Columbia University and University of California, San Diego )

Emi Nakamura Emi Nakamura (University of California, Berkeley)

Jon Steinsson Jon Steinsson (University of California, Berkeley)

Abstract

We estimate the slope of the Phillips curve in the cross section of U.S. states using newly constructed state-level price indexes for non-tradeable goods back to 1978. Our estimates indicate that the slope of the Phillips curve is small and was small even during the early 1980s.We estimate only a modest decline in the slope of the Phillips curve since the 1980s. We use a multi-region model to infer the slope of the aggregate Phillips curve from our regional estimates. Applying our estimates to recent unemployment dynamics yields essentially no missing disinflation or missing reinflation over the past few business cycles. Our results imply that the sharp drop in core inflation in the early 1980s was mostly due to shifting expectations about long-run monetary policy as opposed to a steep Phillips curve, and the greater stability of inflation since the 1990s is mostly due to long-run inflationary expectations becoming more firmly anchored.

Creation Date

2021-04

Section URL ID

Paper Number

284

URL

https://gceps.princeton.edu/wp-content/uploads/2021/07/284_Hazell.pdf

File Function

Jel

E30

Keyword(s)

Suppress

false

Series

3