No. 1492 - Production networks and the flattening of the Phillips curve

by Christian Höynck
July 2025
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The work develops a New-Keynesian model with multiple sectors to analyze the role of a changing production structure on the sensitivity of inflation to economic activity captured by the Phillips curve. In the model, the production of sectors is linked to each other through the intermediate inputs. The calibration is based on the United States and information on yearly input-output tables from 1963-2017.

The network structure of an economy affects aggregate inflation dynamics. A stronger use of intermediate goods in production and a larger role of sectors characterized by higher nominal rigidities in price setting dampen the response of inflation to economic activity. In the U.S., part of the flatting of the Phillips curve in the past decades can be explained by an increasing importance of sectors with rigid prices, especially services.

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  1. 28 July 2025
    No. 1492 - Production networks and the flattening of the Phillips curve
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