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How Curvy is the Phillips Curve? / Philip Bunn, Lena Anayi, Emily Barnes, Nicholas Bloom, Aaron Jalca, Paul Mizen, Gregory Thwaites, Ivan Yotzov.
- Format:
- Book
- Author/Creator:
- Bunn, Philip.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w33234.
- NBER working paper series no. w33234
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2024.
- Summary:
- Macro evidence suggests a convex relationship between inflation and slack, but causal identification is challenging. Using large firm-panel surveys in the UK and US, we show that price responses to demand shocks are convex at the firm level, across hypothetical survey shocks, realised sales shocks, and COVID-induced demand shocks. Convexity is strongest when firms and industries face higher inflation, fades beyond two years, and applies to cost shocks. We rationalise these findings with a menu-cost model in which trend inflation moves firms closer to price-increase thresholds. We estimate that this nonlinearity explains about one quarter of the 2022 inflation overshoot.
- Notes:
- December 2024.
- Print version record
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