Literature Review on New Keynesian Phillips Curve (NKPC)

Abstract This paper revisits the theoretical and empirical evolution of the Phillips Curve through the lens of modern New Keynesian macroeconomics. While the traditional unemployment–inflation relationship has long been viewed as unstable, recent advances attribute its variability to the interaction of expectations, nominal rigidities, and structural features such as openness and imported marginal costs. The review synthesizes key developments in the New Keynesian Phillips Curve, including forward-looking price setting, hybrid indexation, sticky-information dynamics, and small open-economy extensions. Empirical evidence across advanced, emerging, and transition economies reveals substantial heterogeneity in slope, persistence, and the relative weight of backward- and forward-looking components, particularly across tranquil and recessionary periods. The findings highlight that the Phillips Curve is conditional rather than structural, with inflation dynamics fundamentally shaped by the credibility of monetary policy, the structure of expectations, and the sensitivity of marginal costs to domestic and external shocks.