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

Author

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  • Anil Kumar
  • Pia M. Orrenius

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

  • Anil Kumar & Pia M. Orrenius, 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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    More about this item

    Keywords

    Phillips curve; monetary policy; unemployment; wage growth;
    All these keywords.

    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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