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Monetary policy and the wage inflation-unemployment tradeoff

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  • Gabriel, Ricardo Duque

Abstract

Using newly assembled data for 18 advanced economies between 1870 and 2019, I study how monetary policy affects wage inflation and unemployment and document two key findings regarding their tradeoff. First, the wage Phillips curve displays a time-varying slope. Second, the tradeoff becomes weaker in low price inflation environments due to a stronger unemployment rate and a muted wage inflation response to monetary policy. These findings lend support to the idea that monetary policy has state-dependent effects with the central banks’ ability in exploring the tradeoff being impaired by a low price inflation environment.

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  • Gabriel, Ricardo Duque, 2023. "Monetary policy and the wage inflation-unemployment tradeoff," European Economic Review, Elsevier, vol. 159(C).
    • Handle: RePEc:eee:eecrev:v:159:y:2023:i:c:s0014292123001939
    DOI: 10.1016/j.euroecorev.2023.104565
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    More about this item

    Keywords

    Phillips curve; Phillips multiplier; Wage inflation; Unemployment; Monetary policy; Economic history;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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