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Anatomy of the Phillips Curve: Micro Evidence and Macro Implications

Author

Listed:
  • Luca Gagliardone
  • Mark Gertler
  • Simone Lenzu
  • Joris Tielens

Abstract

We develop a bottom-up approach to estimate the slope of the primitive form of the New Keynesian Phillips curve, which features marginal cost as the real activity variable. Using quarterly micro data on prices, costs, and output, we estimate dynamic pass-through regressions that identify the slope as a function of primitive parameters. We find a high slope for the cost-based Phillips curve, which contrasts with the low estimates of the conventional output gap–based formulation found in the literature. We reconcile by showing that the output elasticity of marginal cost is low, at least during moderate inflation periods (e.g., pre-pandemic).

Suggested Citation

  • Luca Gagliardone & Mark Gertler & Simone Lenzu & Joris Tielens, 2025. "Anatomy of the Phillips Curve: Micro Evidence and Macro Implications," American Economic Review, American Economic Association, vol. 115(11), pages 3941-3974, November.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:11:p:3941-74
    DOI: 10.1257/aer.20231569
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    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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