https://macropaperwarehouse.com/authors/simone-lenzu/Simone LenzuHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/anatomy-of-the-phillips-curve-micro-evidence-and-macro-implications/https://macropaperwarehouse.com/papers/anatomy-of-the-phillips-curve-micro-evidence-and-macro-implications/<p><strong>Research Question</strong></p> <p>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 &ldquo;flat,&rdquo; 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.</p>