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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 applications–starting with the original Phillips (1958) curve–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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15758.

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Date of creation: Feb 2010
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Publication status: published as Jordi Galí, 2011. "The Return Of The Wage Phillips Curve," Journal of the European Economic Association, John Wiley & Sons, Ltd., vol. 9(3), pages 436-461, 06.
Handle: RePEc:nbr:nberwo:15758

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