EcoFin Research Papers

This paper revisits the theoretical and empirical evolution of the Phillips Curve through the lens of modern New Keynesian macroeconomics. While the traditional unemployment–inflation relationship has long been viewed as unstable, recent advances attribute its variability to the interaction of expectations, nominal rigidities, and structural features such as openness and imported marginal costs. The review synthesizes key developments in the New Keynesian Phillips Curve, including forward-looking price setting, hybrid indexation, sticky-information dynamics, and small open-economy extensions. Empirical evidence across advanced, emerging, and transition economies reveals substantial heterogeneity in slope, persistence, and the relative weight of backward- and forward-looking components, particularly across tranquil and recessionary periods. The findings highlight that the Phillips Curve is conditional rather than structural, with inflation dynamics fundamentally shaped by the credibility of monetary policy, the structure of expectations, and the sensitivity of marginal costs to domestic and external shocks.

Basarac, M., Skrabic, B., & Soric, P. (2011). The Hybrid Phillips Curve: Empirical Evidence from Transition Economies. Czech Journal of Economics and Finance, 61(4).

Batini, N., Jackson, B., & Nickell, S. (2005). An open-economy new Keynesian Phillips curve for the UK. Journal of Monetary Economics, 52(6), 1061–1071. https://doi.org/10.1016/j.jmoneco.2005.08.003

Blanchard, O., & Gali, J. (2010). Labor markets and monetary policy: A new keynesian model with unemployment. American Economic Journal: Macroeconomics, 2(2), 1-30.

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Gali, J., & Monacelli, T. (2005). Monetary Policy and Exchange Rate Volatility in a Small Open Economy. The Review of Economic Studies, 72(3), 707-734.

Gali, J., Gertler, M., & Lopez-Salido, J. D. (2001). European Inflation Dynamics. European Economic Review, 45(7), 1237-1270.

Gali, J., Gertler, M., & Lopez-Salido, J. D. (2005). Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve. Journal of Monetary Economics, 52(6), 1107-1118.

Mankiw, N. G., & Reis, R. (2002). Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve. The Quarterly Journal of Economics, 117(4), 1295-1328. Retrieved from https://www.jstor.org/stable/4132479

Monacelli, T. (2005). Monetary Policy in a Low Pass-through Environment. Journal of Money, Credit and Banking, 37(6), 1047-1066. Retrieved from https://www.jstor.org/stable/3839027

Roberts, J. M. (1995). New Keynesian Economics and the Phillips Curve. Journal of Money, Credit and Banking, 27(4), 975-984. https://doi.org/10.2307/2077783

Rudd, J., & Whelan, K. (2005). New Tests of the New-Keynesian Phillips Curve. Journal of Monetary Economics, 52(6), 1167-1181.

Sovbetov, I. (2025a). The hybrid Phillips curve and inflation in post-Soviet Central Asia and the South Caucasus. Post-Communist Economies, 37(8), 1149–1171. https://doi.org/10.1080/14631377.2025.2576203

Sovbetov, I. (2025b). Inflation Dynamics and Real Marginal Cost Decomposition: A Cross-Country Analysis of the Hybrid NKPC. SSRN: https://ssrn.com/abstract=6075832

Sovbetov, Y. (2019). Phillips curve estimation during tranquil and recessionary periods: evidence from panel analysis. Istanbul Journal of Economics, 69(1), 23-41. https://doi.org/10.26650/ISTJECON2019-0016

Sovbetov, Y., & Kaplan, M. (2019a). Causes of Failure of the Phillips Curve: Does Tranquillity of Economic Environment Matter? The European Journal of Applied Economics, 16(2), 139-154. https://doi.org/10.5937/EJAE16-21569

Sovbetov, Y., & Kaplan, M. (2019b). Empirical examination of the stability of Expectations–Augmented Phillips Curve for developing and developed countries. Theoretical and Applied Economics, 26(2/619), 63-78.