A recent debate centers on the instability of the slope of the Phillips curve over time. Most of the empirical evidence on the dynamic evolution of the Phillips curve, however, is based on either structural or semi-structural models with time-varying parameters or instrumental variable estimates in ad-hoc sub-samples.

We contribute to the literature by offering insights from a flexible time-varying instrumental variable approach. Even after controlling for endogeneity, we find evidence of a weakening of the structural slope of the Phillips curve starting around 1980. We find that the weakening of the cyclical relationship between
unemployment and inflation is due to a flattening of the Phillips curve over time rather than to monetary policy. We also offer new insights on the Phillips curve during the recent pandemic: We find that the flattening has reverted and the Phillips curve is coming back.

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