Event Details

Economics Seminar

Abstract:"During the 2021-22 high-inflation surge, euro-area firms significantly increased the frequency with which they adjusted prices. This paper documents that such a shift in price-setting behaviour led to a transitory steepening of the Phillips curve, which had remained persistently flat throughout the preceding low-inflation period. In a model with nominal rigidities, a higher frequency of price adjustments steepens the Phillips curve and enhances the transmission of monetary policy, enabling central banks to contain cost-push shocks with a smaller loss in output. We provide robust empirical evidence for the euro area using panel local projections, confirming the link between the frequency of price changes, the slope of the Phillips curve in the euro area, and the increased effectiveness of monetary policy."