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The wage growth puzzle and the Philips Curve explained: recent developments

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Listed:
  • DiGabriele, Jim
  • Ojo, Marianne

Abstract

Is the Philips Curve Still Applicable in Today’s Financial Environment? The relationship between wage inflation and unemployment, is not only considered by Gali and Gambetti (2018:2) to be a “a key link of the relation between prices and economic activity” but also regarded as the focus of Phillips (1958) original work, is widely perceived to be at the heart of the "twin puzzle.” Further they add that, “the failure of wage inflation to respond sufficiently to the tightening of the labor market in recent years is generally viewed as one of the main factors behind the extremely accommodating monetary policies” at central banks like the Federal Reserve or the ECB.” Why can some economic indicators still be considered to be applicable and relevant – even in an environment where so many advancements and financial instruments have significantly altered the financial landscape which existed over the years? In particular, why can the Philips Curve still be considered applicable and relevant – with reference to wage inflation and productivity? More importantly, what economic indicators can serve to provide more reliable indicators of inflationary levels once more temporary elements, as induced by import prices, have diminished?

Suggested Citation

  • DiGabriele, Jim & Ojo, Marianne, 2019. "The wage growth puzzle and the Philips Curve explained: recent developments," MPRA Paper 95110, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:95110
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    References listed on IDEAS

    as
    1. de Ridder, M. & Pfajfar, D., 2017. "Policy Shocks and Wage Rigidities: Empirical Evidence from Regional Effects of National Shocks," Cambridge Working Papers in Economics 1717, Faculty of Economics, University of Cambridge.
    2. Olivier Coibion & Yuriy Gorodnichenko, 2015. "Is the Phillips Curve Alive and Well after All? Inflation Expectations and the Missing Disinflation," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 197-232, January.
    3. Peter Hooper & Frederic S. Mishkin & Amir Sufi, 2019. "Prospects for Inflation in a High Pressure Economy: Is the Phillips Curve Dead or is It Just Hibernating?," NBER Working Papers 25792, National Bureau of Economic Research, Inc.
    4. A. W. Phillips, 1958. "The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957," Economica, London School of Economics and Political Science, vol. 25(100), pages 283-299, November.
    5. Olivier Blanchard, 2016. "The Phillips Curve: Back to the '60s?," American Economic Review, American Economic Association, vol. 106(5), pages 31-34, May.
    6. Mary C. Daly, 2019. "Prospects for Inflation in a High Pressure Economy: Is the Phillips Curve Dead or is it just Hibernating?," Speech 192, Federal Reserve Bank of San Francisco.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    exchange rates; inflation targeting; monetary policy; interest rates; Philips Curve; wage rate;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • K2 - Law and Economics - - Regulation and Business Law
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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