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An Empirical Study on the New Keynesian Wage Phillips Curve: Japan and the US

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  • Ichiro Muto

    (Bank of Japan)

  • Kohei Shintani

    (Bank of Japan)

Abstract

We present an empirical analysis on the New Keynesian Wage Phillips Curve (NKWPC), which is derived by Gali (2011) as a micro-founded structural relationship between wage inflation and the unemployment rate under a sticky wage framework using data for Japan and the US. We find that the empirical fit of the NKWPC is generally superior for Japan. We also find that the slope of the NKWPC is much steeper in Japan than in the US. These results suggest that wages are less sticky in Japan than in the US. Inflation indexation plays a key role in the US, but is less important in Japan. Rolling estimations indicate that the NKWPC has flattened over time in Japan. Analysis of recent data indicates that in both countries the role of inflation indexation is quantitatively smaller than before, although this result might be influenced by low and stable inflation rates over the past few decades.

Suggested Citation

  • Ichiro Muto & Kohei Shintani, 2014. "An Empirical Study on the New Keynesian Wage Phillips Curve: Japan and the US," Bank of Japan Working Paper Series 14-E-4, Bank of Japan.
    • Handle: RePEc:boj:bojwps:wp14e04
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    Cited by:

    1. Yoichi Ueno, 2024. "Linkage between Wage and Price Inflation in Japan," Bank of Japan Working Paper Series 24-E-7, Bank of Japan.
    2. De Schryder, Selien & Peersman, Gert & Wauters, Joris, 2020. "Wage indexation and the monetary policy regime," Journal of Macroeconomics, Elsevier, vol. 63(C).
    3. Jonathan A. Attey, 2016. "Time-Varying Degree of Wage Indexation and the New Keynesian Wage Phillips Curve," Tinbergen Institute Discussion Papers 16-102/VI, Tinbergen Institute.
    4. Davide Porcellacchia, 2016. "Wage-Price Dynamics and Structural Reforms in Japan," IMF Working Papers 2016/020, International Monetary Fund.
    5. Takeo Hoshi & Anil K Kashyap, 2020. "The Great Disconnect: The Decoupling of Wage and Price Inflation in Japan," NBER Working Papers 27332, National Bureau of Economic Research, Inc.
    6. Momo Komatsu, 2023. "The effect of wage rigidity on the transmission of monetary policy to inequality," Economics Series Working Papers 1004, University of Oxford, Department of Economics.
    7. Alexius, Annika & Lundholm, Michael & Nielsen, Linnea, 2020. "Is the Phillips curve dead? International evidence," Research Papers in Economics 2020:1, Stockholm University, Department of Economics.
    8. Chun-Hung Kuo & Hiroaki Miyamoto, 2016. "Unemployment and Wage Rigidity in Japan: A DSGE Model Perspective," Working Papers EMS_2016_06, Research Institute, International University of Japan.
    9. Hiroyuki Kubota & Ichiro Muto & Mototsugu Shintani, 2022. "Monetary Policy, Labor Force Participation, and Wage Rigidity," IMES Discussion Paper Series 22-E-17, Institute for Monetary and Economic Studies, Bank of Japan.
    10. Iwasaki, Yuto & Muto, Ichiro & Shintani, Mototsugu, 2021. "Missing wage inflation? Estimating the natural rate of unemployment in a nonlinear DSGE model," European Economic Review, Elsevier, vol. 132(C).
    11. Fumitaka Nakamura & Nao Sudo & Yu Sugisaki, 2021. "Monetary Policy Shocks and the Employment of Young, Middle-Aged, and Old Workers," IMES Discussion Paper Series 21-E-06, Institute for Monetary and Economic Studies, Bank of Japan.
    12. Antonia López-Villavicencio & Sophie Saglio, 2017. "The Wage Inflation-Unemployment Curve at the Macroeconomic Level," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(1), pages 55-78, February.
    13. Erzsébet Éva Nagy & Veronika Tengely, 2018. "The external and domestic drivers of inflation: the case study of Hungary," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and deglobalisation, volume 100, pages 149-172, Bank for International Settlements.
    14. Guilmi, Corrado Di & Fujiwara, Yoshi, 2022. "Dual labor market, financial fragility, and deflation in an agent-based model of the Japanese macroeconomy," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 346-371.
    15. Ichiro Muto & Kohei Shintani, 2014. "What are the Characteristics of Japan's Aggregate Wage Dynamics?: An Empirical Study on the New Keynesian Wage Phillips Curve for Japan and the US," Bank of Japan Research Laboratory Series 14-E-2, Bank of Japan.

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    More about this item

    Keywords

    Wage; Unemployment rate; New Keynesian model; Phillips curve;
    All these keywords.

    JEL classification:

    • 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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