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Economic Analysis Letters

Open Access Journal Article

Convexity of the Phillips Curve and Difficulty of Monetary Policy to Fight against Inflation

by Séverine Menguy a,*
a
Faculté Société et Humanité, Université Paris Cité, Paris, France
*
Author to whom correspondence should be addressed.
JEA  2025 4(3):113; https://doi.org/10.58567/jea04030005
Received: 22 February 2025 / Accepted: 23 May 2025 / Published Online: 9 June 2025
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Abstract

We propose a theoretical model that underlines the implications of a non-linear Phillips curve for the difficulty of monetary policy to fight against inflationary tensions similar to those encountered in 2021 and 2022 at a worldwide level, due to the resumption of demand after the COVID crisis and to the war in Ukraine. In such non-linearities, the interest rate becomes an asymmetric and convex function of an inflationary supply shock variation. In the case of inflationary tensions, the nominal interest rate can then strongly increase above its long-term equilibrium value. Economic recession is exacerbated, whereas inflationary tensions are more accentuated. Then, the risk is a more than proportional increase in public expenditure to compensate for the decrease in private consumption, which could not be achieved without a strong growth in the public indebtedness level.

Keywords: Inflation; Phillips Curve; Convexity; Non-linearity; Monetary Policy;
Copyright: © 2025 by Menguy. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
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APA Style
Menguy, S. (2025). Convexity of the Phillips Curve and Difficulty of Monetary Policy to Fight against Inflation. Journal of Economic Analysis, 4(3), 113. doi:10.58567/jea04030005
ACS Style
Menguy, S. Convexity of the Phillips Curve and Difficulty of Monetary Policy to Fight against Inflation. Journal of Economic Analysis, 2025, 4, 113. doi:10.58567/jea04030005
AMA Style
Menguy S. Convexity of the Phillips Curve and Difficulty of Monetary Policy to Fight against Inflation. Journal of Economic Analysis; 2025, 4(3):113. doi:10.58567/jea04030005
Chicago/Turabian Style
Menguy, Séverine 2025. "Convexity of the Phillips Curve and Difficulty of Monetary Policy to Fight against Inflation" Journal of Economic Analysis 4, no.3:113. doi:10.58567/jea04030005

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ACS Style
Menguy, S. Convexity of the Phillips Curve and Difficulty of Monetary Policy to Fight against Inflation. Journal of Economic Analysis, 2025, 4, 113. doi:10.58567/jea04030005
AMA Style
Menguy S. Convexity of the Phillips Curve and Difficulty of Monetary Policy to Fight against Inflation. Journal of Economic Analysis; 2025, 4(3):113. doi:10.58567/jea04030005
Chicago/Turabian Style
Menguy, Séverine 2025. "Convexity of the Phillips Curve and Difficulty of Monetary Policy to Fight against Inflation" Journal of Economic Analysis 4, no.3:113. doi:10.58567/jea04030005
APA style
Menguy, S. (2025). Convexity of the Phillips Curve and Difficulty of Monetary Policy to Fight against Inflation. Journal of Economic Analysis, 4(3), 113. doi:10.58567/jea04030005

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References

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