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Has the U.S. Wage Phillips Curve Flattened? A Semi-Structural Exploration

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  • Jordi Galí
  • Luca Gambetti

Abstract

Unconditional reduced form estimates of a conventional wage Phillips curve for the U.S. economy point to a decline in its slope coefficient in recent years, as well as a shrinking role of lagged price inflation in the determination of wage inflation. We provide estimates of a conditional wage Phillips curve, based on a structural decomposition of wage, price and unemployment data generated by a VAR with time varying coefficients, identified by a combination of long-run and sign restrictions. Our estimates show that the key qualitative findings from the unconditional reduced form regressions also emerge in the conditional evidence, suggesting that they are not entirely driven by endogeneity problems or possible changes over time in the importance of of wage markup shocks. The conditional evidence, however, suggests that actual changes in the slope of the wage Phillips curve may not have been as large as implied by the unconditional estimates.

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  • Jordi Galí & Luca Gambetti, 2019. "Has the U.S. Wage Phillips Curve Flattened? A Semi-Structural Exploration," NBER Working Papers 25476, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25476
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    10. Jordi Galí & Frank Smets & Rafael Wouters, 2012. "Unemployment in an Estimated New Keynesian Model," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 329-360.
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    Cited by:

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    2. Inoue, Atsushi & Rossi, Barbara & Wang, Yiru, 2024. "Has the Phillips Curve Flattened?," CEPR Discussion Papers 18846, C.E.P.R. Discussion Papers.
    3. Philippe Goulet Coulombe, 2020. "The Macroeconomy as a Random Forest," Papers 2006.12724, arXiv.org, revised Mar 2021.
    4. Stefański, Maciej, 2022. "Macroeconomic effects and transmission channels of quantitative easing," Economic Modelling, Elsevier, vol. 114(C).
    5. Budrys, Žymantas & Porqueddu, Mario & Sokol, Andrej, 2022. "Striking a bargain: narrative identification of wage bargaining shocks," Research Bulletin, European Central Bank, vol. 98.
    6. Janice C. Eberly & James H. Stock & Jonathan H. Wright, 2020. "The Federal Reserve's Current Framework for Monetary Policy: A Review and Assessment," International Journal of Central Banking, International Journal of Central Banking, vol. 16(1), pages 5-71, February.
    7. Ferri, Piero & Cristini, Annalisa & Tramontana, Fabio, 2023. "Meta-models of the Phillips curve and income distribution," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 215-232.
    8. Smith, Simon & Timmermann, Allan & Wright, Jonathan, 2023. "Breaks in the Phillips Curve: Evidence from Panel Data," CEPR Discussion Papers 18033, C.E.P.R. Discussion Papers.
    9. Clayton, Christopher & Schaab, Andreas, 2022. "A Theory of Dynamic Inflation Targets," TSE Working Papers 22-1389, Toulouse School of Economics (TSE).
    10. Anastasia Burya & Rui Mano & Yannick Timmer & Anke Weber, 2023. "The Wage Phillips Curve under Labor Market Power," AEA Papers and Proceedings, American Economic Association, vol. 113, pages 110-113, May.
    11. Philippe Goulet Coulombe, 2024. "The macroeconomy as a random forest," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(3), pages 401-421, April.
    12. Christophe Blot & Jérôme Creel & Emmanuelle Faure & Paul Hubert, 2020. "Setting New Priorities for the ECB's Mandate," SciencePo Working papers Main hal-03403024, HAL.
    13. Philippe Goulet Coulombe, 2021. "The Macroeconomy as a Random Forest," Working Papers 21-05, Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management.
    14. repec:spo:wpmain:info:hdl:2441/3o6mep11pr9uha5lb808ba3q9n is not listed on IDEAS
    15. Rose Cunningham & Vikram Rai & Kristina Hess, 2019. "Exploring Wage Phillips Curves in Advanced Economies," Discussion Papers 2019-8, Bank of Canada.
    16. David Blanchflower & Alex Bryson & Jackson Spurling, 2024. "The wage curve after the Great Recession," Economica, London School of Economics and Political Science, vol. 91(362), pages 653-668, April.
    17. repec:hal:spmain:info:hdl:2441/1f03f28hhu85b9bn1bp8i7g8ie is not listed on IDEAS
    18. Philippe Goulet Coulombe, 2022. "A Neural Phillips Curve and a Deep Output Gap," Working Papers 22-01, Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management.
    19. repec:spo:wpmain:info:hdl:2441/1f03f28hhu85b9bn1bp8i7g8ie is not listed on IDEAS
    20. Smith, Simon & Timmermann, Allan & Wright, Jonathan, 2023. "Breaks in the Phillips Curve: Evidence from Panel Data," CEPR Discussion Papers 18033, C.E.P.R. Discussion Papers.
    21. repec:hal:spmain:info:hdl:2441/3o6mep11pr9uha5lb808ba3q9n is not listed on IDEAS
    22. Philippe Goulet Coulombe, 2022. "A Neural Phillips Curve and a Deep Output Gap," Papers 2202.04146, arXiv.org, revised Oct 2024.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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