An Exploration of the Stability of the Phillips Curve in Peru

This paper empirically explores whether the dynamics of inflation and its determinants have changed over time in Peru. The analysis focuses on the slope of the Phillips curve to seek for evidence whether a flattening of this curve can explain the apparent lower synchronization between inflation and measures of demand pressure after 2014, and therefore an absence of disinflation. Based on estimates of a nonlinear Phillips curve, no evidence is found supporting a change in its slope. The period of absence of disinflation may be better explained by shocks to inflation expectations, an increase in the relative weight of the inflation expectation component in the Phillips curve and a temporal rise in inflation inertia. (Audio: Department of Economic Publications)