Convexity of the Phillips Curve and Difficulty of Monetary Policy to Fight against Inflation

Séverine Menguy
Additional contact information
Séverine Menguy: Faculté Société et Humanité, Université Paris Cité, Paris, France

Journal of Economic Analysis, 2025, vol. 4, issue 3, 90-110

Abstract: We propose a theoretical model that underlines the implications of a non-linear Phillips curve for the difficulty of monetary policy to fight against inflationary tensions similar to those encountered in 2021 and 2022 at a worldwide level, due to the resumption of demand after the COVID crisis and to the war in Ukraine. In such non-linearities, the interest rate becomes an asymmetric and convex function of an inflationary supply shock variation. In the case of inflationary tensions, the nominal interest rate can then strongly increase above its long-term equilibrium value. Economic recession is exacerbated, whereas inflationary tensions are more accentuated. Then, the risk is a more than proportional increase in public expenditure to compensate for the decrease in private consumption, which could not be achieved without a strong growth in the public indebtedness level.

Keywords: Inflation; Phillips Curve; Convexity; Non-linearity; Monetary Policy (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.anserpress.org/journal/jea/4/3/113/pdf (application/pdf)
https://www.anserpress.org/journal/jea/4/3/113 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bba:j00001:v:4:y:2025:i:3:p:90-110:d:436

Access Statistics for this article

Journal of Economic Analysis is currently edited by Ramona Wang

More articles in Journal of Economic Analysis from Anser Press
Bibliographic data for series maintained by Ramona Wang ().