Discussion Paper

Anatomy (not Autopsy) of the Phillips Curve

Abstract: The relationship between inflation and real economic activity has long been central to debates in macroeconomics and monetary policy. At the core of this debate is the Phillips curve (PC), which measures how strongly inflation reacts to movements in economic conditions. The steepness of this curve matters enormously for monetary policy: if the PC is steeper, inflation rises faster during booms and falls faster in recessions, which entails central banks having to act more forcefully if they want to stabilize inflation around their target. Prior analysis found astonishingly small estimates of the slope of the PC, which suggests that the curve is “flat” (or even dead). In this post, I present evidence from coauthored research showing that, contrary to the conventional view, the Phillips curve is alive and steep, and it captures inflation volatility remarkably well once real marginal cost is used instead of standard real economic activity measures.

JEL Classification: E31; E32;

https://doi.org/10.59576/lse.20260204

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2026-02-04

Number: 20260204