Discussion paper

DP19069 The Long-Run Phillips Curve is ... a Curve

In U.S. data, inflation and output are negatively related in the long run. A piecewise linear Bayesian VAR provides evidence in favor of a threshold level of trend inflation of around 4%, below which potential output is independent of trend inflation, and above which, potential output is negatively impacted. Every percentage point increase in trend inflation above the threshold is related to about 1% decrease in potential output. An estimated New Keynesian model generalized allowing time-varying trend inflation yields a structural long-run Phillips Curve that is statistically similar to the one implied by the reduced-form piecewise linear BVAR model.


Ascari, G (2024), ‘DP19069 The Long-Run Phillips Curve is ... a Curve‘, CEPR Discussion Paper No. 19069. CEPR Press, Paris & London. https://cepr.org/publications/dp19069