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Controlling for geographic dispersion when estimating the Japanese Phillips curve

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  • Hiroshi Fujiki
  • Howard J. Wall

Abstract

This paper argues that estimation of the Phillips curve for Japan should take account of the geographic dispersion of labor-market conditions. We find evidence that the relationship between wage inflation and the unemployment rate is convex. With such convexity, wage inflation can occur when unemployment rates across regions become more disperse, even if the aggregate unemployment rate is unchanged. We show that controlling for the geographic dispersion of unemployment rates yields a flatter Phillips curve and a higher natural rate of unemployment.

Suggested Citation

  • Hiroshi Fujiki & Howard J. Wall, 2006. "Controlling for geographic dispersion when estimating the Japanese Phillips curve," Working Papers 2006-057, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2006-057
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    References listed on IDEAS

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    1. Kuroda, Sachiko & Yamamoto, Isamu, 2005. "Wage Fluctuations in Japan after the Bursting of the Bubble Economy: Downward Nominal Wage Rigidity, Payroll, and the Unemployment Rate," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 23(2), pages 1-29, May.
    2. David Card & Dean Hyslop, 1997. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Chapters,in: Reducing Inflation: Motivation and Strategy, pages 71-122 National Bureau of Economic Research, Inc.
    3. Kenneth J. McLaughlin, 1999. "Are nominal wage changes skewed away from wage cuts?," Review, Federal Reserve Bank of St. Louis, issue May, pages 117-132.
    4. Kuroda, Sachiko & Yamamoto, Isamu, 2003. "Are Japanese Nominal Wages Downwardly Rigid? (Part I): Examinations of Nominal Wage Change Distributions," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(2), pages 1-29, August.
    5. Howard J. Wall & Gylfi Zoega, 2004. "U. S. regional business cycles and the natural rate of unemployment," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 23-32.
    6. Kuroda, Sachiko & Yamamoto, Isamu, 2003. "The Impact of Downward Nominal Wage Rigidity on the Unemployment Rate: Quantitative Evidence from Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(4), pages 57-85, December.
    7. Toyoda, Toshihisa, 1972. "Price Expectations an the Short-Run and Long-Run Phillips Curves in Japan, 1956-1968," The Review of Economics and Statistics, MIT Press, vol. 54(3), pages 267-274, August.
    8. Kimura, Takeshi & Ueda, Kazuo, 2001. "Downward Nominal Wage Rigidity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 15(1), pages 50-67, March.
    9. Daiji Kawaguchi & Fumio Ohtake, 2007. "Testing the Morale Theory of Nominal Wage Rigidity," ILR Review, Cornell University, ILR School, vol. 61(1), pages 59-74, October.
    10. Mio, Hitoshi, 2001. "The Phillips Curve and Underlying Inflation," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(2), pages 85-107, May.
    11. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678-678.
    12. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-138, May.
    13. Hamada, Koichi & Kurosaka, Yoshio, 1984. "The relationship between production and unemployment in Japan : Okun's law in comparative perspective," European Economic Review, Elsevier, vol. 25(1), pages 71-94, June.
    14. Naoto Osawa & Kazushige Kamiyama & Koji Nakamura & Tomohiro Noguchi & Eiji Maeda, 2002. "An Examination of Structural Changes in Employment and Wages in Japan," Bank of Japan Research Papers 2002-08-02, Bank of Japan.
    15. Fujiki, Hiroshi & Nakada, Sachiko-Kuroda & Tachibanaki, Toshiaki, 2001. "Structural Issues in the Japanese Labor Market: An Era of Variety, Equity, and Efficiency or an Era of Bipolarization?," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 177-208, February.
    16. Kuroda, Sachiko & Yamamoto, Isamu, 2003. "Are Japanese Nominal Wages Downwardly Rigid? (Part II): Examinations Using a Friction Model," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(2), pages 31-68, August.
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    Keywords

    Phillips curve ; Japan ; Labor market;

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