Beschreibung:
I explore potential causes of the flattening of the Phillips curve and why they matter for monetary policy. I use a novel open economy nested-CES model to show that an increase in product market concentration and a higher degree of trade openness lead to a flatter Phillips curve. My model predicts a 30% drop in the slope of the Phillips curve since the 1990s. Moreover, I demonstrate that the central bank’s optimal policy choices depend separately on different causes, not just on the resulting slope of the Phillips curve. Through a series of policy experiments, I quantitatively show the policymakers would set the interest rate 20% higher than optimality if they misunderstand the causes