An Exploration of the Stability of the Phillips Curve in Peru

This study empirically examines whether the dynamics of inflation and its determinants have changed over time. In particular, it focuses on the slope of the Phillips curve to determine whether a flattening of this curve can explain the apparent reduced synchronization between inflation and the measure of demand pressures after 2014 and, consequently, the absence of disinflation. Based on estimates of a nonlinear Phillips curve, there is little evidence of a change in the slope of the Phillips curve. The period of disinflation can be explained by shocks to inflation expectations, an increase in their relative importance, and a temporary increase in inflation inertia.