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Prices, Wages and the U.S. NAIRU in the 1990s

  • Douglas Staiger
  • James H. Stock
  • Mark W. Watson

Using quarterly macro data and annual state panel data, we examine various explanations of the low rate of price inflation, strong real wage growth, and low rate of unemployment in the U.S. economy during the late 1990s. Many of these explanations imply shifts in the coefficients of price and wage Phillips curves. We find, however, that once one accounts for the univariate trends in the unemployment rate and in the rate of productivity growth, these coefficients are stable. This suggests that many explanations, such as persistent beneficial supply shocks, changes in firms' pricing power, changes in price expectations arising from shifts in Fed policy, and changes in wage setting behavior miss the mark. Rather, we suggest that explanations of movements of wages, prices and unemployment over the 1990s, and indeed over the past forty years, must focus on understanding the univariate trends in the unemployment rate and in productivity growth and, perhaps, the relation between the two.

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File URL: http://www.nber.org/papers/w8320.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8320.

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Date of creation: Jun 2001
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Publication status: published as Krueger, Alan B. and Robert Solow (eds.) The Roaring ‘90s: Can Full Employment Be Sustained. New York: Russell Sage and Century Fund, 2001.
Handle: RePEc:nbr:nberwo:8320
Note: EFG ME
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  1. Ray C. Fair, 2000. "Testing the NAIRU Model for the United States," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 64-71, February.
  2. Douglas Staiger & James H. Stock & Mark W. Watson, 1996. "How Precise are Estimates of the Natural Rate of Unemployment?," NBER Working Papers 5477, National Bureau of Economic Research, Inc.
  3. Robert J. Gordon, 1981. "Inflation, Flexible Exchange Rates, and the Natural Rate of Unemployment," NBER Working Papers 0708, National Bureau of Economic Research, Inc.
  4. Timothy Cogley & Thomas J. Sargent, 2002. "Evolving Post-World War II U.S. Inflation Dynamics," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 331-388 National Bureau of Economic Research, Inc.
  5. David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, June.
  6. Robert J. Gordon, 1988. "U.S. Inflation, Labor's Share, and the Natural Rate of Unemployment," NBER Working Papers 2585, National Bureau of Economic Research, Inc.
  7. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  8. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
  9. James H. Stock & Mark W. Watson, 1999. "Forecasting Inflation," NBER Working Papers 7023, National Bureau of Economic Research, Inc.
  10. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
  11. George A. Akerlof & William T. Dickens & George L. Perry, 2000. "Near-Rational Wage and Price Setting and the Long-Run Phillips Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 1-60.
  12. David Card & Dean Hyslop, 1995. "Does Inflation 'Grease the Wheels of the Labor Market'?," Working Papers 735, Princeton University, Department of Economics, Industrial Relations Section..
  13. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
  14. Lewis Segal & Daniel Sullivan, 1996. "The growth of temporary services work," Working Paper Series, Macroeconomic Issues WP-96-26, Federal Reserve Bank of Chicago.
  15. Douglas Staiger & James H. Stock & Mark W. Watson, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter.
  16. James K. Galbraith, 1997. "Time to Ditch the NAIRU," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 93-108, Winter.
  17. Jeffrey C. Fuhrer, 1995. "The Phillips curve is alive and well," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 41-56.
  18. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  19. Olivier Blanchard & Lawrence F. Katz, 1996. "What We Know and Do Not Know About the Natural Rate of Unemployment," NBER Working Papers 5822, National Bureau of Economic Research, Inc.
  20. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
  21. David H. Autor, 2000. "Why Do Temporary Help Firms Provide Free General Skills Training?," NBER Working Papers 7637, National Bureau of Economic Research, Inc.
  22. repec:cup:cbooks:9780521599214 is not listed on IDEAS
  23. Robert G. King & James H. Stock & Mark W. Watson, 1995. "Temporal instability of the unemployment-inflation relationship," Economic Perspectives, Federal Reserve Bank of Chicago, issue May, pages 2-12.
  24. Holden, Steinar & Nymoen, Ragnar, 2002. " Measuring Structural Unemployment: NAWRU Estimates in the Nordic Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(1), pages 87-104.
  25. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
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