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The Return Of The Wage Phillips Curve

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  • Jordi Galí

Abstract

The standard New Keynesian model with staggered wage setting is shown to imply a simple dynamic relation between wage inflation and unemployment. Under some assumptions, that relation takes a form similar to that found in empirical wage equations-starting from Phillips' (1958) original work-and may thus be viewed as providing some theoretical foundations to the latter. The structural wage equation derived here is shown to account reasonably well for the comovement of wage inflation and the unemployment rate in the U.S. economy, even under the strong assumption of a constant natural rate of unemployment.

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File URL: http://hdl.handle.net/10.1111/j.1542-4774.2011.01023.x
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Bibliographic Info

Article provided by European Economic Association in its journal Journal of the European Economic Association.

Volume (Year): 9 (2011)
Issue (Month): 3 (06)
Pages: 436-461

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Handle: RePEc:bla:jeurec:v:9:y:2011:i:3:p:436-461

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  1. Galí, Jordi & Smets, Frank & Wouters, Rafael, 2011. "Unemployment in an Estimated New Keynesian Model," CEPR Discussion Papers 8401, C.E.P.R. Discussion Papers.
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