Deciphering the Global Phillips Curve Using Sub‐National Data in India's Inflation Targeting Era: Some Policy Implications

ABSTRACT Our study examines the short‐run Phillips Curve relationship using sub‐national data from India to analyze inflation and unemployment dynamics during the inflation targeting era (IT) framework under the Global Phillips Curve (GPC) framework. It aims to identify whether the established relationship varies across different inflation regimes. Using panel data from 15 Indian states from January 2016 to May 2022, we employed the Accelerationist Phillips Curve (APC) and the New Keynesian Phillips Curve (NKPC) forms of the GPC. We analyzed the relationship using panel‐data econometric techniques. We found no statistically significant Phillips Curve relationship on average; only isolated positive coefficients occur in a few short regimes with small samples, which might be random and transitory. The study indicates that inflation dynamics may differ across sub‐national levels, possibly weakening the unemployment‐inflation trade‐off in India's informal labor market. The findings suggest that traditional macroeconomic tools based on the national Phillips Curve, like monetary interventions, may not be practical in India.