Oil Prices, Monetary Policy and Inflation Surges

Thu, 01 Jan 2026 00:00:00 +0000

Gagliardone and Gertler ask why the US inflation surge that began in mid-2021 was both sudden and persistent, and whether a simple structural model can account for it without targeting inflation in estimation. The paper’s central claim is that the surge was driven primarily by the combination of large oil price shocks and accommodative (“easy”) monetary policy by the Federal Reserve, with oil complementarities and real wage rigidity as the key amplification mechanisms. Secondary factors — demand shocks and labor-market tightening — matter but do not drive the surge on their own.

Anatomy of the Phillips Curve: Micro Evidence and Macro Implications

Research Question

This paper addresses a fundamental puzzle in macroeconomics: why do estimates of the New Keynesian Phillips curve (NKPC) slope differ sharply depending on whether real marginal cost or the output gap is used as the real activity variable? The conventional, output gap-based NKPC yields very flat slope estimates (e.g., 0.006 to 0.024 in Hazell et al. 2022 and Rotemberg and Woodford 1997), which has led to the widespread view that the Phillips curve is “flat,” at least during the pre-pandemic period. The authors argue that this view conflates two distinct structural relationships: the elasticity of inflation with respect to real marginal cost, and the elasticity of marginal cost with respect to the output gap.

Luca Gagliardone | Macro Paper Warehouse

Oil Prices, Monetary Policy and Inflation Surges

Anatomy of the Phillips Curve: Micro Evidence and Macro Implications