Does long-term unemployment affect inflation dynamics?
BankUnderground
JUNE 13, 2023
Simulating a simple Phillips curve To help illustrate the mechanism, we consider a simple Phillips curve model with two key ingredients: (i) the share of LTU rises in deep recessions and (ii) a slope that is convex with respect to aggregate unemployment. Chart 1 shows simulation results from this Phillips curve setup using US data.
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