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Wage curve vs. Phillips curve: are there macroeconomic implications?

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  • Karl Whelan

Abstract

The standard derivation of the accelerationist Phillips curve relates expected real wage inflation to the unemployment rate and invokes a constant price markup and adaptive expectations to generate the accelerationist price inflation formula. Blanchflower and Oswald (1994) argue that microeconomic evidence of a low autoregression coefficient in real wage regressions invalidates the macroeconomic Phillips curve. This conclusion has been disputed by a number of authors on the grounds that the true autoregression coefficient is close to 1. This paper shows that given the assumption of a constant price markup, micro-level real wage dynamics have no observable implications for macro data on wage and price inflation.

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File URL: http://www.federalreserve.gov/pubs/feds/1997/199751/199751abs.html
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File URL: http://www.federalreserve.gov/pubs/feds/1997/199751/199751pap.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1997-51.

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Date of creation: 1997
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Handle: RePEc:fip:fedgfe:1997-51

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Related research

Keywords: Wages ; Macroeconomics;

References

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  1. repec:nbr:nberre:0126 is not listed on IDEAS
  2. Robert J. Gordon, 1996. "The Time-Varying NAIRU and its Implications for Economic Policy," NBER Working Papers 5735, National Bureau of Economic Research, Inc.
  3. Blanchard, O & Katz, L, 1996. "What We Know and Do Not Know about the Natural Rate of Unemployment," Working papers 96-29, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. repec:fth:prinin:343 is not listed on IDEAS
  5. David G. Blanchflower & Andrew J. Oswald, 1995. "An Introduction to the Wage Curve," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 153-167, Summer.
  6. Julio J. Rotemberg & Michael Woodford, 1991. "Markups and the Business Cycle," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 63-140 National Bureau of Economic Research, Inc.
  7. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, September.
  8. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  9. David Card, 1995. "The Wage Curve: A Review," Working Papers 722, Princeton University, Department of Economics, Industrial Relations Section..
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Cited by:
  1. Dobrescu, Emilian, 2007. "Double Conditioned Potential Output," Working Papers of Institute for Economic Forecasting 070701, Institute for Economic Forecasting.
  2. Daniel Aaronson & Daniel Sullivan, 2000. "Unemployment and wage growth: recent cross-state evidence," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 41-54.
  3. Dobrescu, Emilian, 2006. "Macromodel of the Romanian market economy (version 2005)," MPRA Paper 35749, University Library of Munich, Germany.
  4. Islam, Faridul & Shahbaz, Muhammad & Shabbir, Muhammad, 2011. "Phillips curve in a small open economy: A time series exploration of North Cyprus," MPRA Paper 28397, University Library of Munich, Germany.
  5. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, vol. 89(2), pages 69-74, May.
  6. Blanchflower, David G. & Oswald, Andrew J., 2005. "The Wage Curve Reloaded," IZA Discussion Papers 1665, Institute for the Study of Labor (IZA).
  7. Enrique López E. & Martha Misas A., 1999. "Un Examen Empirico De La Curva De Phillips En Colombia," BORRADORES DE ECONOMIA 003676, BANCO DE LA REPÚBLICA.
  8. Fabiani, Silvia & Mestre, Ricardo, 2000. "Alternative measures of the NAIRU in the euro area: estimates and assessment," Working Paper Series 0017, European Central Bank.
  9. Dobrescu, Emilian, 2006. "Integration of macroeconomic behavioural relationships and the input-output block: Romanian modelling experience," MPRA Paper 35748, University Library of Munich, Germany.

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