The recent high-inflation episode generated renewed interest about the slope of the Phillips curve and non-linearities in price-setting behaviour. This column uses survey data from US and UK firms to show that prices respond asymmetrically to demand and cost shocks, with stronger responses to positive shocks. The non-linearity is pronounced for firms and industries with higher average inflation, and helps explain around one-fourth of the inflation overshoot in 2022. These results highlight the importance of taking asymmetries in pricing behaviour into consideration, both in empirical and theoretical work.

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23 December 2025

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VoxEU

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https://cepr.org/voxeu/columns/nonlinear-phillips-curve-helps-explain-inflation-overshoot

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