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Prices, Wages and the U.S. NAIRU in the 1990s

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Author Info
Douglas Staiger
James H. Stock
Mark W. Watson

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Abstract

Using quarterly macro data and annual state panel data, we examine various explanations of the low rate of price inflation, strong real wage growth, and low rate of unemployment in the U.S. economy during the late 1990s. Many of these explanations imply shifts in the coefficients of price and wage Phillips curves. We find, however, that once one accounts for the univariate trends in the unemployment rate and in the rate of productivity growth, these coefficients are stable. This suggests that many explanations, such as persistent beneficial supply shocks, changes in firms' pricing power, changes in price expectations arising from shifts in Fed policy, and changes in wage setting behavior miss the mark. Rather, we suggest that explanations of movements of wages, prices and unemployment over the 1990s, and indeed over the past forty years, must focus on understanding the univariate trends in the unemployment rate and in productivity growth and, perhaps, the relation between the two.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8320.

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Date of creation: Jun 2001
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Handle: RePEc:nbr:nberwo:8320

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Gordon, Robert J, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter. [Downloadable!] (restricted)
    Other versions:
  3. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1998-2), pages 297-346. [Downloadable!]
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    Other versions:
  5. Galbraith, James K, 1997. "Time to Ditch the NAIRU," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 93-108, Winter. [Downloadable!] (restricted)
  6. Jeffrey C. Fuhrer, 1995. "The Phillips curve is alive and well," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 41-56. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hiroaki Miyamoto & Yuya Takahashi, 2009. "Technological Progress, On-the-Job Search, and Unemployment," ISER Discussion Paper 0734, Institute of Social and Economic Research, Osaka University. [Downloadable!]
  2. Jorge E. Restrepo, 2006. "Estimaciones de NAIRU para Chile," Working Papers Central Bank of Chile 361, Central Bank of Chile. [Downloadable!]
  3. Fabien Tripier, 2005. "Sticky prices, fair wages, and the co-movements of unemployment and labor productivity growth," Macroeconomics 0510015, EconWPA. [Downloadable!]
    Other versions:
  4. Antonello D'Agostino & Luca Gambetti & Domenico Giannone, 2009. "Macroeconomic Forecasting and Structural Change," ECARES Working Papers 2009_020, Université Libre de Bruxelles, Ecares. [Downloadable!]
    Other versions:
  5. Rodríguez, Gabriel, 2009. "Using A Forward-Looking Phillips Curve to Estimate the Output Gap in Peru," Working Papers 2009-010, Banco Central de Reserva del Perú. [Downloadable!]
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