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Real Wage Rigidity and the Empirical Pertinence of the Hybrid New Keynesian Phillips Curve in Tunisia

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  • Mariem Mejri
  • Moez Labidi

Abstract

By incorporating real wage rigidity, the Hybrid New Keynesian Phillips Curve (HNKPC) developed by Blanchard and Galí (2007) provides a relevant framework for analysing inflation dynamics and the effects of monetary policies, particularly in a globalised economy. This study assesses its empirical validity in Tunisia by examining the relationship between inflation, unemployment, and output in both the short and long run, using the Generalised Method of Moments (GMM) and a calibration technique. The findings confirm the relevance of this model for the Tunisian economy, highlighting the central role of adaptive expectations in current inflation dynamics. They also reveal a short-term trade-off between inflation and the welfare-relevant output gap, as well as between inflation and unemployment, whereas in the long run, this trade-off disappears, in line with theoretical predictions. The magnitude of these trade-offs is positively correlated with the degree of real wage rigidity, estimated at approximately 95% due to the structure of the Tunisian labour market. These results underscore the importance of structural reforms to enhance the effectiveness of monetary policies and foster a more robust economic trajectory.

Suggested Citation

  • Mariem Mejri & Moez Labidi, 2025. "Real Wage Rigidity and the Empirical Pertinence of the Hybrid New Keynesian Phillips Curve in Tunisia," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 17(6), pages 1-14, June.
    • Handle: RePEc:ibn:ijefaa:v:17:y:2025:i:6:p:14
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    References listed on IDEAS

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    1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    2. Olivier Blanchard & Jordi Galí, 2007. "Real Wage Rigidities and the New Keynesian Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 35-65, February.
    3. Agénor, Pierre-Richard & Bayraktar, Nihal, 2010. "Contracting models of the Phillips curve empirical estimates for middle-income countries," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 555-570, June.
    4. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    5. Imen Kobbi & Foued-Badr Gabsi, 2017. "The Nonlinearity of the New Keynesian Phillips Curve: The Case of Tunisia," Economies, MDPI, vol. 5(3), pages 1-12, July.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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