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Sectoral inflation and the Phillips curve: What has changed since the Great Recession?

Author

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  • Luengo-Prado, María José
  • Rao, Nikhil
  • Sheremirov, Viacheslav
Abstract
Using sectoral data at a medium level of aggregation, we find that disaggregated inflation rates became less responsive to aggregate unemployment around 2009–2010. The slopes of the disaggregated Phillips curves diminished in many sectors, including housing and some services. We also document a decrease in sectoral inflation persistence, suggesting an increase in the weight of the forward-looking inflation expectation component and a decrease in the weight of the backward-looking component.

Suggested Citation

  • Luengo-Prado, María José & Rao, Nikhil & Sheremirov, Viacheslav, 2018. "Sectoral inflation and the Phillips curve: What has changed since the Great Recession?," Economics Letters, Elsevier, vol. 172(C), pages 63-68.
    • Handle: RePEc:eee:ecolet:v:172:y:2018:i:c:p:63-68
    DOI: 10.1016/j.econlet.2018.08.016
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    1. Alexander Doser & Ricardo Nunes & Nikhil Rao & Viacheslav Sheremirov, 2023. "Inflation expectations and nonlinearities in the Phillips curve," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(4), pages 453-471, June.
    2. Jeff Fuhrer & George Moore, 1995. "Inflation Persistence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(1), pages 127-159.
    3. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    4. Fuhrer, Jeffrey C., 2010. "Inflation Persistence," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 9, pages 423-486, Elsevier.
    5. Janet L. Yellen, 2017. "Inflation, Uncertainty, and Monetary Policy : a speech at the \"Prospects for Growth: Reassessing the Fundamentals\" 59th Annual Meeting of the National Association for Business Economics, C," Speech 971, Board of Governors of the Federal Reserve System (U.S.).
    6. Joseph P. Byrne & Alexandros Kontonikas & Alberto Montagnoli, 2013. "International Evidence on the New Keynesian Phillips Curve Using Aggregate and Disaggregate Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(5), pages 913-932, August.
    7. repec:mcb:jmoncb:v:45:y:2013:i::p:913-932 is not listed on IDEAS
    8. Carvalho Carlos, 2006. "Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-58, December.
    9. Ricardo Reis & Mark W. Watson, 2010. "Relative Goods' Prices, Pure Inflation, and the Phillips Correlation," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 128-157, July.
    10. Imbs, Jean & Jondeau, Eric & Pelgrin, Florian, 2011. "Sectoral Phillips curves and the aggregate Phillips curve," Journal of Monetary Economics, Elsevier, vol. 58(4), pages 328-344.
    11. Luengo-Prado, María José & Rao, Nikhil & Sheremirov, Viacheslav, 2018. "Sectoral inflation and the Phillips curve: What has changed since the Great Recession?," Economics Letters, Elsevier, vol. 172(C), pages 63-68.
    12. Olivier Coibion & Yuriy Gorodnichenko & Rupal Kamdar, 2018. "The Formation of Expectations, Inflation, and the Phillips Curve," Journal of Economic Literature, American Economic Association, vol. 56(4), pages 1447-1491, December.
    13. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, July.
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    Cited by:

    1. Kapetanios, George & Price, Simon & Tasiou, Menelaos & Ventouri, Alexia, 2021. "State-level wage Phillips curves," Econometrics and Statistics, Elsevier, vol. 18(C), pages 1-11.
    2. Patricia Toledo & Roberto Duncan, 2024. "Forecasting food price inflation during global crises," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 43(4), pages 1087-1113, July.
    3. Barkan, Oren & Benchimol, Jonathan & Caspi, Itamar & Cohen, Eliya & Hammer, Allon & Koenigstein, Noam, 2023. "Forecasting CPI inflation components with Hierarchical Recurrent Neural Networks," International Journal of Forecasting, Elsevier, vol. 39(3), pages 1145-1162.
    4. Kato, Ryo & Okuda, Tatsushi & Tsuruga, Takayuki, 2021. "Sectoral inflation persistence, market concentration, and imperfect common knowledge," Journal of Economic Behavior & Organization, Elsevier, vol. 192(C), pages 500-517.
    5. Faryna, Oleksandr & Pham, Tho & Talavera, Oleksandr & Tsapin, Andriy, 2022. "Wage and unemployment: Evidence from online job vacancy data," Journal of Comparative Economics, Elsevier, vol. 50(1), pages 52-70.
    6. Alexander Doser & Ricardo Nunes & Nikhil Rao & Viacheslav Sheremirov, 2023. "Inflation expectations and nonlinearities in the Phillips curve," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(4), pages 453-471, June.
    7. Cássio R. A. Alves & Márcio P. Laurini, 2022. "Measuring inflation persistence under time-varying inflation target and stochastic volatility with jumps," Economics Bulletin, AccessEcon, vol. 42(2), pages 342-349.
    8. Dennis Bonam & Gabriele Galati & Irma Hindrayanto & Marco Hoeberichts & Anna Samarina & Irina Stanga, 2019. "Inflation in the euro area since the Global Financial Crisis," DNB Occasional Studies 1703, Netherlands Central Bank, Research Department.
    9. Richard Ashley & Randal J. Verbrugge, 2019. "The Intermittent Phillips Curve: Finding a Stable (But Persistence-Dependent) Phillips Curve Model Specification," Working Papers 19-09R2, Federal Reserve Bank of Cleveland, revised 14 Feb 2023.
    10. Luengo-Prado, María José & Rao, Nikhil & Sheremirov, Viacheslav, 2018. "Sectoral inflation and the Phillips curve: What has changed since the Great Recession?," Economics Letters, Elsevier, vol. 172(C), pages 63-68.

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    More about this item

    Keywords

    Disaggregated price indices; Inflation persistence; Phillips curve;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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