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Whither the Phillips Curve?

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  • Otaviano Canuto

Abstract

There is an international movement to tighten monetary and fiscal policies as a response to the global inflation phenomenon. Accordingly, global economic growth projections for 2022 and 2023 have been revised downward. As inflation will decline only gradually, given the price stickiness of its core components, there is likely to be momentarily a situation of stagflation, i.e. a combination of significant inflation and low or negative GDP growth. We discuss how the current global stagflation experience might develop into one of a soft landing, a sharp downturn, or a deep recession. The evolution will depend on how fast inflation responds downward to economic deceleration. We therefore suggest framing the response in terms of assessing to where major economies’ Phillips curves have shifted. Phillips-curve shifts will also reflect cross-border repercussions of country-specific policy choices. Furthermore, sudden abrupt deteriorations of financial conditions may cause additional moves in Phillips curves.

Suggested Citation

  • Otaviano Canuto, 2022. "Whither the Phillips Curve?," Research papers & Policy papers 1954, Policy Center for the New South.
    • Handle: RePEc:ocp:rpaper:pp-1722
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    References listed on IDEAS

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    1. Chaido Dritsaki & Melina Dritsaki, 2013. "Phillips curve inflation and unemployment: an empirical research for Greece," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 3(1/2), pages 27-42.
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