AEA Papers and Proceedings
ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)
The Slanted-L Phillips Curve
AEA Papers and Proceedings
vol. 114,
May 2024
(pp. 84–89)
Abstract
A slanted-L curve is well suited to represent the nonlinearity of the celebrated Phillips curve. We show this using cross-country data of major industrialized economies since 2009, including the inflationary surge of the 2020s. At high unemployment rates, an increase in demand reduces unemployment without creating strong inflationary pressures. Meanwhile, supply shocks have a muted effect. At sufficiently low unemployment, there is a labor shortage, so that the economy is at full capacity. Then, higher demand is inflationary and supply shocks are amplified. We derive a model of a slanted-L curve.Citation
Benigno, Pierpaolo, and Gauti B. Eggertsson. 2024. "The Slanted-L Phillips Curve." AEA Papers and Proceedings, 114: 84–89. DOI: 10.1257/pandp.20241051Additional Materials
JEL Classification
- E23 Macroeconomics: Production
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E31 Price Level; Inflation; Deflation