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The Phillips Curve in Australia in the Era of Inflation Targeting

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  • Debdulal Mallick

Abstract

Australia, like many other countries, experienced an unexpected surge in inflation following the COVID‐19 pandemic. This has renewed interest in the Phillips curve because of its important implications for monetary policy. We estimate the price Phillips curve in the post‐inflation targeting period using the most recent state‐level data. Identification relies on variation in regional demand that policymakers do not aim to stabilize. After controlling for cost‐push shocks and equilibrium unemployment, we obtain a modest slope of the Phillips curve and, more importantly, we do not find any steepening of the Phillips curve in the post‐COVID period. Without correct identification, the post‐COVID Phillips curve would be steeper as documented for other countries including the United States. We also find that the slope gradually decreases with the level of unemployment.

Suggested Citation

  • Debdulal Mallick, 2024. "The Phillips Curve in Australia in the Era of Inflation Targeting," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 57(3), pages 272-282, September.
    • Handle: RePEc:bla:ausecr:v:57:y:2024:i:3:p:272-282
    DOI: 10.1111/1467-8462.12576
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    References listed on IDEAS

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    1. Mallick, Debdulal, 2019. "Policy regimes and the shape of the Phillips curve in Australia," Journal of Policy Modeling, Elsevier, vol. 41(6), pages 1077-1094.
    2. Warwick J. McKibbin & Augustus Panton, 2018. "25 Years of Inflation Targeting in Australia: Are There Better Alternatives for the next 25 Years?," CAMA Working Papers 2018-19, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. Jonathon Hazell & Juan Herreño & Emi Nakamura & Jón Steinsson, 2022. "The Slope of the Phillips Curve: Evidence from U.S. States," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(3), pages 1299-1344.
    4. Sarantis Tsiaplias & Jiao Wang, 2023. "The Australian Economy in 2022–23: Inflation and Higher Interest Rates in a Post‐COVID‐19 World," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(1), pages 5-19, March.
    5. G.C. Lim & Robert Dixon & Sarantis Tsiaplias, 2009. "Phillips Curve and the Equilibrium Unemployment Rate," The Economic Record, The Economic Society of Australia, vol. 85(271), pages 371-382, December.
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    Cited by:

    1. Sarantis Tsiaplias, 2025. "Introduction to the Policy Forum on the NAIRU," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 58(3), pages 222-223, September.
    2. Sune Karlsson & Pär Österholm, 2026. "On the Stability of Macroeconomic Relationships in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 59(2), pages 208-225, June.

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