Hysteresis and US Labor Markets > > (1990-2014)

This study aims to analyse inflation dynamics of the US economy (2000:01-2014:04) with quarterly series within the framework of Phillips Curve (PC). Following stationarity tests; price equations will be estimated by GMM with unemployment (UN)/employment (N), output gap (Ygap) and rate of growth of each variable, as explanatory variables. PC and/or NKPC estimations will reveal whether the price dynamics is responsive to the level of of output, UN/N variables or the rate of increase of these variables, supporting the existence of hysteresis patterns. As frequently criticised in the recent literature, PC has lost its explanatory power in the post 2008 period; for the inflation rate should have fallen further with the prevailing level of high unemployment in the economy, namely "the case of missing deflation". Further analyzing the PC tradeoff in the economy between real activity and rate of inflation, we will estimate the PC/NKPC equation against short term unemployment (SRU) and long term unemployment (LRU) separately. In relevant research there is some belief that SRU puts more pressure on wages and thus prices, which is hardly tested by quantitative empirical analysis. The results will provide further information on both the nature of inflation and hysteresis dynamics, for affective SRU will provide support for the hysteresis hypothesis. As time and resources permit equations may also alternatively be estimated in the PC/NKPC format against detrended marginal cost index, labor income share (and alternatively) employment expectations gap. While labor income share and employment expectations gap are available time series, a new marginal cost index will be constructed to represent the manufacturing costs' structure of the US. See above See above