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How to disappear completely: nonlinearity and endogeneity in the New Keynesian Wage Phillips Curve

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  • Daniel Sebastião Abreu
  • Artur Silva Lopes

Abstract

We use a three-regime threshold regression model to assess the ability of the New Keynesian Wage Phillips Curve (NKWPC) to describe wage inflation in the US over the 1965–2018 period. Nonlinearity is clearly supported by the data and it easily resists an endogeneity correction. However, this correction exposes more clearly the shortcomings of the NKWPC as a successful description of wage dynamics in the extreme phases of the business cycles, when unemployment is either low or high. In both cases, it becomes completely flat.

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  • Daniel Sebastião Abreu & Artur Silva Lopes, 2021. "How to disappear completely: nonlinearity and endogeneity in the New Keynesian Wage Phillips Curve," Applied Economics Letters, Taylor & Francis Journals, vol. 28(9), pages 774-778, May.
    • Handle: RePEc:taf:apeclt:v:28:y:2021:i:9:p:774-778
    DOI: 10.1080/13504851.2020.1781763
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    References listed on IDEAS

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    Cited by:

    1. Andrew Phiri, 2022. "Pursuing the Phillips Curve in an African Monarchy: A Swazi Case Study," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 16(4), December.

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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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