The Phillips Curve during the Pandemic: Bringing Regional Data to Bear

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The Phillips curve appears to have held up well at the regional level during the COVID-19 era. Areas of the country that took relatively large hits to their unemployment rate and employment-population ratio during the pandemic have had lower inflation, on average, than areas that took relatively small hits. And, just as prior to the pandemic, the inverse relationship between inflation and unemployment continues to be statistically stronger for the prices of services than of goods.

Key finding:

  • During the pandemic, there has been a significant inverse relationship between unemployment and inflation at the city size by census region level.
  • We cannot reject the hypothesis that, for services and other expenditure categories, the strength of the relationship is unchanged from prior to the pandemic.
  • At the census division level, there has been an inverse relationship between inflation and the unemployment rate in recent years, and a positive relationship between inflation and the employment-population rate. The latter relationship has been somewhat stronger.

Center for Quantitative Economic Research

JEL classification: C23, E31, E32

Key words: inflation, unemployment, labor markets, Phillips curve, regional data, panel data

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