The Unassuming Economist

From a paper by William Ginna:

“This paper presents a non-linear extension of the Phillips Curve by estimating a Local Projections (LP) panel model using data from 14 countries between January 1999 and December 2023. The non-linearity arises from the asymmetric effects of the El Niño–Southern Oscillation (ENSO), which alternates between El Niño and La Niña phases. The findings highlight two key dimensions of this asymmetry: slope and curvature. In terms of slope, the Phillips Curve is significantly steeper during La Niña episodes, with inflation responding more strongly and persistently to unemployment gaps. In terms of curvature, the inflation response under La Niña builds over time, reflecting non-linear propagation dynamics. In contrast, the Phillips Curve is flatter and responses are weaker and less persistent during El Niño phases. These findings underscore the importance of incorporating ENSO variability into macroeconomic models.”