The Phillips Curve's and Relative Phillips Curve's Slopes: Why So Different?

Bill Dupor

No 2025-010, Working Papers from Federal Reserve Bank of St. Louis

Abstract: I estimate the effect of labor market tightness on wage inflation from 2004-2019 using aggregate data and a hybrid New Keynesian Phillips curve. The Phillips curve slope, i.e., the effect of a unit increase in the vacancy-unemployment ratio on inflation, is about 3.4 percentage points. Then, I estimate the model using the corresponding panel-level data with a time-fixed-effect regression: The resulting regional (i.e., relative) Phillips curve slope is about 0.7. This large difference between the two slopes is robust to controlling for various measures of inflation expectations and for supply shocks. The gap arises because variation used in one regression is—by construction—orthogonal that used in the other. I explain how cross-region spillovers might explain the large gap between the aggregate and relative slopes.

Keywords: Phillips curve; fixed effects; spillovers (search for similar items in EconPapers)
JEL-codes: E31 (search for similar items in EconPapers)
Pages: 9 pages
Date: 2025-05-18
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DOI: 10.20955/wp.2025.010

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