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A closer look at the Phillips curve using state-level data

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Abstract

Studies that estimate the Phillips curve for the U.S. use mainly national-level data and find mixed evidence of nonlinearity, with some recent studies either rejecting nonlinearity or estimating only modest convexity. In addition, most studies do not make a distinction between the relative impacts of short-term vs. long-term unemployment on wage inflation. Using state-level data from 1982 to 2013, we find strong evidence that the wage-price Phillips curve is nonlinear and convex; declines in the unemployment rate below the average unemployment rate exert significantly higher wage pressure than changes in the unemployment rate above the historical average. We also find that the short-term unemployment rate has a strong relationship with both average and median wage growth, while the long-term unemployment rate appears to only influence median wage growth.

Suggested Citation

  • Kumar, Anil & Orrenius, Pia M., 2014. "A closer look at the Phillips curve using state-level data," Working Papers 1409, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddwp:1409
    DOI: 10.24149/wp1409
    Note: Published as: Kumar, Anil and Pia M. Orrenius (2016), "A Closer Look at the Phillips Curve Using State-Level Data," Journal of Macroeconomics, 47 (Part A): 84-102.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Phillips Curve: A Primer
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2017-05-29 16:34:30

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    1. repec:eee:jpolmo:v:39:y:2017:i:2:p:247-271 is not listed on IDEAS
    2. Sylvain Leduc & Daniel Wilson, 2018. "From NY to LA: A Look at the Wage Phillips Curve Using Cross-Geographical Data," 2018 Meeting Papers 1290, Society for Economic Dynamics.
    3. Juan Carlos Berganza & Pedro del Río & Fructuoso Borrallo, 2016. "Determinants and implications of low global inflation rates," Occasional Papers 1608, Banco de España;Occasional Papers Homepage.
    4. Albuquerque, Bruno & Baumann, Ursel, 2017. "Will US inflation awake from the dead? The role of slack and non-linearities in the Phillips curve," Journal of Policy Modeling, Elsevier, vol. 39(2), pages 247-271.
    5. Behera, Harendra & Wahi, Garima & Kapur, Muneesh, 2017. "Phillips Curve Relationship in India: Evidence from State-Level Analysis," MPRA Paper 80737, University Library of Munich, Germany.
    6. Jeremy J. Nalewaik, 2016. "Non-Linear Phillips Curves with Inflation Regime-Switching," Finance and Economics Discussion Series 2016-078, Board of Governors of the Federal Reserve System (U.S.).
    7. Mohammed Saiful Islam & Riduanul Mustafa, 2017. "Quest for a Valid Phillips Curve in the Long Run: An Empirical Approach," International Business Research, Canadian Center of Science and Education, vol. 10(4), pages 191-198, April.
    8. Yasser Abdih & Ravi Balakrishnan & Baoping Shang, 2016. "What is Keeping U.S. Core Inflation Low; Insights from a Bottom-Up Approach," IMF Working Papers 16/124, International Monetary Fund.
    9. repec:eee:ecmode:v:68:y:2018:i:c:p:273-292 is not listed on IDEAS
    10. Cecchetti, Stephen G & Feroli, Michael & Hooper, Peter & Kashyap, Anil K & Schoenholtz, Kermit, 2017. "Deflating Inflation Expectations: The Implications of Inflation's Simple Dynamics," CEPR Discussion Papers 11925, C.E.P.R. Discussion Papers.
    11. Doser, Alexander & Nunes, Ricardo & Rao, Nikhil & Sheremirov, Viacheslav, 2017. "Inflation expectations and nonlinearities in the Phillips curve," Working Papers 17-11, Federal Reserve Bank of Boston.
    12. Nathan R. Babb & Alan K. Detmeister, 2017. "Nonlinearities in the Phillips Curve for the United States : Evidence Using Metropolitan Data," Finance and Economics Discussion Series 2017-070, Board of Governors of the Federal Reserve System (U.S.).
    13. Stephan Danninger, 2016. "What's Up with U.S. Wage Growth and Job Mobility?," IMF Working Papers 16/122, International Monetary Fund.
    14. Semmler, Willi & Gross, Marco, 2017. "Mind the output gap: the disconnect of growth and inflation during recessions and convex Phillips curves in the euro area," Working Paper Series 2004, European Central Bank.
    15. Donayre, Luiggi & Panovska, Irina, 2016. "Nonlinearities in the U.S. wage Phillips curve," Journal of Macroeconomics, Elsevier, vol. 48(C), pages 19-43.

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    Keywords

    Phillips curve; monetary policy; unemployment; wage growth;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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