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A Decomposition of the Phillips Curve’s Flattening

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Abstract

While the original papers on the inflation-unemployment relationship, i.e., the Phillips curve, studied aggregate data, a recent generation of work has moved to regional analysis. We estimate Phillips curves in the US based on regional data between 1958 and 2013, from which we can recover the national Phillips Curve. We find that the curves’ evolution over time is characterized by changing cross-region spillovers largely due to a subset of 1970s observations. We show that for these observations, regional inflation exhibits strong negative comovement with national unemployment even after controlling for own region unemployment, resulting in a negative spillover in the regional Phillips curve regression. Aggregating across regional curves, the negative spillover works to steepen the national Phillips curve. The local (regional), spillover and national Phillips curve slopes observed in the data are qualitatively consistent with a simple multi-region monetary model with endogenous monetary policy.

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  • Bill Dupor & Marie Hogan & Jingchao Li, 2024. "A Decomposition of the Phillips Curve’s Flattening," Working Papers 2025-002, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:99477
    DOI: 10.20955/wp.2025.002
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    Keywords

    local spillover decomposition; Phillips curve;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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