Topic: TFP Growth Regimes and the State Dependence of the Slope of the Phillips Curve

Lecturer: Assistant Researcher Hanguo Huang, School of Economics, Shandong University

Time: 12:15-13:15p.m. October 12th, 2023

Venue: B321 Zhixin Building, Central Campus

Abstract: What is the relationship between the long-run productivity growth and the short-run trade-off between inflation and economic slack? This paper studies the state dependence of the slope of the Phillips curve on the trend productivity growth. By merging two longitudinal data bases, I present estimates of the“average”New Keynesian Phillips curve for 17 advanced economies across TFP growth regimes since 1890. Following the state-of-the-art method, I estimate the New Keynesian Phillips curve using trilemma monetary shocks as instruments and find that the Phillips curve is steeper (flatter) in high (low) growth regime.

My empirical finding is consistent with the following mechanism: the structural changes that contribute to higher productivity growth could also result in more competitive market, increasing the price elasticity of demand so that the pass-through of marginal costs from short-run demand changes is higher. This mechanism is qualitatively in tune with the recent trends of flattening Phillips curve and productivity slowdown amid rising market concentration in major advanced economies. The policy implication is that structural reforms that can improve productivity and restore business dynamism help enhance the potency of monetary policy to stabilize inflation in the long run value them now less.