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Is there a stable Phillips Curve after all?


  • Terry J. Fitzgerald
  • Brian Holtemeyer
  • Juan Pablo Nicolini


The Phillips curve refers to a negative (or inverse) relationship between unemployment and inflation in an economy?when unemployment is high, inflation tends to be low, and vice versa. This inflation-unemployment link has been observed in many countries during many times, most famously by William Phillips in 1958 looking at historical data for the United Kingdom. If this relationship is stable (or ?structural?)?meaning that it holds regardless of changes in the economic environment, including policy adjustment?then policymakers might be able to trade off increases in inflation to achieve lower unemployment, or the inverse. ; However, research over the past 40 years has thrown a great deal of doubt onto whether a stable Phillips curve relationship exists. Economists have documented large changes over time in the relationship between unemployment and inflation. In addition, theoretical work has shown that the existence of an empirical association does not necessarily mean that policymakers can exploit that relationship; there may be a statistical correlation?but not a causal link?between inflation and unemployment. ; In this essay, we revisit the stability of the Phillips curve. Our key insight is that if the analysis incorporates a central bank seeking to stabilize inflation, national data are likely to provide little information about the existence (or absence) of a stable relationship. We show that regional data can overcome this obstacle. While estimates of Phillips curves using national U.S. data are highly unstable over the past 40 years, we find that estimates based on regional data are remarkably stable. Our results suggest that a 1-percentage-point-lower unemployment rate is associated with higher inflation of 0.3 percentage points over the next year, and the stability of the relationship suggests that it might provide a viable tool for policymakers.

Suggested Citation

  • Terry J. Fitzgerald & Brian Holtemeyer & Juan Pablo Nicolini, 2013. "Is there a stable Phillips Curve after all?," Economic Policy Paper 13-6, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmep:13-6

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    Cited by:

    1. Harendra Behera & Garima Wahi & Muneesh Kapur, 2017. "Phillips Curve Relationship in India: Evidence from State-Level Analysis," Working Papers id:11973, eSocialSciences.
    2. Behera, Harendra & Wahi, Garima & Kapur, Muneesh, 2018. "Phillips curve relationship in an emerging economy: Evidence from India," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 116-126.
    3. Morell, Joseph, 2018. "The decline in the predictive power of the US term spread: A structural interpretation," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 314-331.
    4. Teresa Messner & Fabio Rumler, 2020. "Langfristige Determinanten der österreichischen Inflation – die Rolle des EU-Beitritts," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1-Q2/20, pages 169-179.

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