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

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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.

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File URL: http://www.dallasfed.org/assets/documents/research/papers/2014/wp1409.pdf
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Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 1409.

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Length: 38 pages
Date of creation: 01 Oct 2014
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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