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Advances in the New Keynesian Phillips Curve: A Meta-Analysis
Get PDFThis paper provides a comprehensive meta-analysis of advances in the New Keynesian Phillips Curve (NKPC) literature, synthesizing theoretical developments, empirical findings, and methodological innovations over the past three decades. Rather than aggregating coefficients mechanically, the study adopts a structured qualitative–quantitative meta-analytic approach to evaluate how inflation dynamics vary across economic regimes, institutional settings, and model specifications. The analysis reveals that apparent instability and flattening of the Phillips Curve largely reflect regime dependence, expectation anchoring, and openness to global cost pressures rather than a breakdown of the underlying NKPC mechanism. Evidence across advanced, emerging, and transition economies indicates that forward-looking inflation behavior strengthens in tranquil macroeconomic environments with credible monetary frameworks, while backward-looking inertia dominates during recessions and in economies with histories of volatile inflation. Hybrid and sticky-information NKPC formulations consistently outperform purely forward-looking specifications in capturing inflation persistence, particularly during periods of heightened uncertainty. Recent methodological contributions, including time-varying, Bayesian, frequency-domain, and machine learning approaches, further demonstrate that the Phillips relationship is nonlinear, state-dependent, and horizon-specific. Overall, the findings suggest that the NKPC remains a valid but conditional framework for understanding inflation dynamics, with its empirical performance critically shaped by expectations regimes, institutional credibility, and global integration
Literature Review on New Keynesian Phillips Curve (NKPC)
Get PDFThis 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
Financial Volatility, Sentiment, and Moral Shocks as Cost-Push Drivers in the Phillips
Get PDFÜniversiteniz İktisadi ve İdari Bilimler Fakültesi, Ekonomi ve Finans (İngilizce) Bölümü’nde yürütmekte olduğum Bölüm Başkan Yardımcılığı görevimin, idari görevlerin yoğunluğu nedeniyle araştırma ve eğitim-öğretim sorumluluklarımla birlikte sağlıklı biçimde sürdüremediğim için üzerimden alınmasını arz ederim. Gereğini bilgilerinize saygılarımla arz ederim. This paper revisits the Phillips Curve by incorporating financial volatility, investor sentiment, and moral valuation shocks as structural cost-push components within the New Keynesian Phillips Curve framework. While conventional explanations for the flattening of the inflation–slack relationship emphasize expectation anchoring, globalization, or labor market changes, we argue that financial market instability and sentiment-driven moral re-pricing systematically alter firms’ marginal costs and pricing behavior. Financial volatility raises external financing premia, tightens balance sheet constraints, and amplifies precautionary pricing, while sentiment and moral shocks reshape demand elasticities and equilibrium markups. Embedding these channels into a hybrid NKPC highlights a previously underexplored transmission mechanism through which financial and ethical perceptions influence inflation dynamics. The framework reconciles empirical instability in Phillips Curve estimates with observed episodes of inflation persistence during periods of weak real activity, suggesting that modern inflation is increasingly driven by non-traditional cost pressures rather than labor market slack alone
Revisiting the Failure of the Phillips Curve after COVID-19: A 2025 Update
Get PDFThe COVID-19 pandemic has reignited fundamental debates about the stability, slope, and empirical relevance of the Phillips Curve. While the relationship between inflation and economic slack deteriorated during the pandemic, recent scholarship offers new insights that complicate simplified narratives about the curve’s failure. This meta-analysis synthesizes evidence from pre-COVID panel studies and the rapidly growing body of post-2020 research. Earlier cross-country analyses illustrate that the inflation–unemployment relationship is highly conditional on macroeconomic tranquillity, institutional structure, and inflation expectations, particularly during recessionary periods. Post-COVID research advances this perspective by uncovering substantial nonlinearities, structural breaks, frequency-dependent dynamics, anchored expectation effects, trend inflation interactions, and regional heterogeneity. The pandemic shock provides an empirical environment in which many conventional mechanisms behave atypically, yet recent studies show that the Phillips relationship re-emerges once expectations stabilize and supply disruptions ease. Integrating evidence from hybrid NKPC models, time-varying instrumental variable techniques, Bayesian structural break approaches, spatial panels, sectoral analyses, and explainable machine learning, this study concludes that the Phillips Curve has neither collapsed nor returned unchanged. Instead, its apparent instability reflects the interaction between forward-looking expectations, inflation persistence, structural labor-market transformations, capacity constraints, and global supply linkages. These findings reaffirm the importance of hybrid modeling frameworks and caution against interpreting reduced-form flattening as evidence of structural irrelevance
Public Spending- Private Investment Nexus in South Africa
Get PDFThis paper empirically investigates the association between different components of government spending and private investment in South Africa. Using autoregressive distributed lags (ARDL) analysis, we examine data span5ning from 2005q2 and 2022q1. Our results reveal distinct impacts of various government spending components on private investment. Specifically, we find that education spending has a significant effect in the long run but lacks significant short-term impact. Moreover, expenditures on housing and environmental protection stimulate investment, indicating a crowding-in effect. Conversely, health spending shows a negative long-term effect on investment, although its short-term impact is not significant. Notably, military expenditure is found to detrimentally affect private investment in South Africa. Our findings suggest the potential for reallocating resources among different spending categories without necessarily undermining investment. Furthermore, they underscore the potential for enhancing investment and fostering growth in South Africa by channelling more resources toward education, environmental protection, and housing
Cryptocurrency Volatility as a Digital Cost-Push Shock
Get PDFThis paper examines whether cryptocurrency market volatility operates as an auxiliary cost-push pressure within the New Keynesian Phillips Curve framework. Using quarterly data for the United States from 2010Q1 to 2025Q1, we estimate closed- and open-economy hybrid NKPC specifications augmented with an aggregate measure of crypto volatility constructed from the Garman–Klass estimator applied to the top 100 cryptocurrencies by market capitalization. Crypto volatility is interpreted as capturing digital-financial uncertainty, energy-cost pressures, and expectation-related effects that are not fully reflected in standard macroeconomic variables. Generalized Method of Moments estimations indicate that crypto volatility enters inflation dynamics with a consistently positive coefficient in forward-looking and hybrid specifications, while remaining insignificant in purely backward-looking models. Controlling for crypto volatility slightly attenuates the estimated Phillips curve slope, suggesting that digital financial instability conditions observed inflation–slack relationships rather than replacing them. Overall, the findings point to cryptocurrency markets as a complementary transmission channel linking financial volatility and inflation dynamics in the post-2010 U.S. economy
Does Options Bolster Capital Markets in South Africa?
Get PDFThis study examines the impact of option on South African’s capital markets over the period 1991–2020. Using put–call open interest ratios (PCOIR) and put–call volume ratios (PCVR), we test whether option sentiment provides predictive signals beyond conventional macro-financial variables. Applying quantile regression with robustness checks for asymmetry, regime dependence, and macro-financial interactions, we find that option sentiment significantly predicts equity and bond returns, with bearish signals exerting stronger effects than bullish ones. The predictive influence intensifies during periods of heightened volatility and financial stress, and its strength varies with liquidity conditions and monetary policy stance.
Overall, the findings show that option sentiment is both a reflection of investor expectations and a driver of asset price dynamics, underscoring its informational role in South Africa’s capital markets
Inflation Dynamics and Digitalization
Get PDFThis paper examines how digitalization reshapes inflation dynamics by conditioning the slope and persistence of the Phillips Curve within a New Keynesian framework. Using U.S. quarterly data from 1990Q1 to 2024Q4, the study estimates backward-looking, forward-looking, and hybrid New Keynesian Phillips Curves via Generalized Method of Moments, embedding digital intensity as a structural modifier of the inflation–slack transmission mechanism. The results show that U.S. inflation dynamics are best characterized by a hybrid Phillips Curve in which forward-looking expectations dominate but inflation persistence remains non-negligible. While the inflation response to real activity is modest when slack is measured by the output gap, it becomes substantially stronger when proxied by real marginal costs. Crucially, digitalization significantly weakens the pass-through from both output gaps and marginal costs to inflation, flattening the Phillips slope as digital intensity rises, while leaving the forward-looking component largely intact. These findings suggest that digitalization does not eliminate the Phillips Curve but transforms its transmission channel, offering a structural explanation for the coexistence of subdued inflation responsiveness and expectation-driven pricing in the digital era
Inflation Dynamics and the New Keynesian Phillips Curve in Sub-Saharan Africa
Get PDFThis paper empirically investigates inflation dynamics in Sub-Saharan African economies within a New Keynesian Phillips Curve framework over the period 1995–2024. While the Phillips Curve has been extensively examined in advanced economies, evidence from Sub-Saharan Africa remains fragmented and inconclusive. Using a panel of Sub-Saharan African countries and a hybrid New Keynesian Phillips Curve estimated via Generalized Method of Moments, the study evaluates the relative importance of forward-looking expectations, inflation persistence, and real economic slack. The findings indicate that inflation in the region is characterized by strong persistence and a limited forward-looking component, with marginal costs providing a more robust measure of inflationary pressure than output gaps. The Phillips relationship weakens substantially during periods of macroeconomic instability, supporting the view that the inflation–activity trade-off in Sub-Saharan Africa is conditional on the economic environment. The results highlight the importance of structural and institutional factors in shaping inflation dynamics and suggest that standard New Keynesian models require regional adaptation when applied to low- and middle-income economies
The Exchange Rate Pass-Through: Evidence of South Africa
Get PDFUnderstanding the role of the exchange rate behaviour in domestic prices is crucial for monetary authorities in anticipating inflation. Over the last 28 years (1994 – 2022), the inflation rate in South Africa has increased, averaging at 5.7% per year. It is believed that some of the increase in the inflation rate is a result of trade, hence this study aims at identifying how much of the changes in the exchange rate is passed on to domestic inflation. This idea is of interest in a country like South Africa that had implemented inflation targeting. The study identifies two channels of the exchange rate pass-through (ERPT); direct and indirect. the direct involves the change in import prices that is associated with the change in the exchange rate. The indirect channel involves the change in consumer price index (CPI) and the producer price index (PPI) that is associated with a change in import prices. The study uses monthly data from 1994 – 2022 to identify the speed and the magnitude of the exchange rate pass-through to domestic prices in the short-run and the long-run. Using the vector autoregressive model (VAR) and the vector error correction model the results shows that the magnitude of the exchange rate pass-through to import prices is relatively higher than the exchange pass-through to the CPI and PPI and that import prices; CPI and PPI increases immediately after an increase in the exchange rate