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The resurgence of the New Zealand Phillips curve

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Abstract

• This Note assesses how the Phillips curve, which describes the relationship between inflation and economic activity, has evolved over time. A steeper Phillips curve can help explain why inflation increased so sharply in the COVID-19 period and would also imply that inflation should decrease quickly as capacity pressures ease. • In general, the slope of the Phillips curve (across a range of inflation and activity indicators) drifted upwards during the pandemic and beyond, from the relatively lower levels observed between 2008 and 2019. This indicates a stronger relationship between activity and inflation since 2020. • The most noticeable steepening of the Phillips curve in the post-2020 period has been observed when job-to-job labour flows and a QSBO labour shortage measure are used as activity measures. Both indicators have been shown in previous work to correlate well with inflation. In contrast, we find that the changes in the slope of Phillips curve featuring the unemployment rate have been relatively mild.

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  • Willy Alanya-Beltran & Maui Brennan & Punnoose Jacob, 2024. "The resurgence of the New Zealand Phillips curve," Reserve Bank of New Zealand Analytical Notes series AN2024/02, Reserve Bank of New Zealand.
    • Handle: RePEc:nzb:nzbans:2024/02
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