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

Pierpaolo Benigno and Gauti Eggertsson

No 31197, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: E12 E3 E30 E40 E50 E60 (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-cba, nep-des, nep-dge, nep-lab, nep-mac and nep-mon
Note: ME
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Citations: View citations in EconPapers (10)

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Working Paper: It's Baaack: The Surge in Inflation in the 2020s and the Return of the Non-Linear Phillips Curve (2023)
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