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From NY to LA: A Look at the Wage Phillips Curve Using Cross-Geographical Data

Author

Listed:
  • Sylvain Leduc

    (Bank of Canada)

  • Daniel Wilson

    (Federal Reserve Bank of San Francisco)

Abstract

This paper estimates the cross-geographical wage Phillips Curve (PC) and relates this object to the aggregate wage PC through the lens of a New Keynesian model of regions within a monetary union. We argue that a well-identfied cross-geographical PC, combined with a theoretical mapping from this object to the aggregate PC, provides an appealing alternative to estimating the latter from time-series variation. We employ this approach to study the recent debates over whether the wage PC slope has flattened in recent years and whether the wage PC is nonlinear. We find substantial evidence of a flattening of the wage PC during the recovery from the Great Recession, using both state and city panel data. We find no evidence of any economically meaningful nonlinearity. As our theoretical model shows, a flattening cross-geographical wage PC need not imply a flattening aggregate PC if intra-national labor mobility has risen and/or if monetary policy has become less passive. However, evidence points to the opposite, suggesting that the aggregate PC slope flattened at least as much.

Suggested Citation

  • Sylvain Leduc & Daniel Wilson, 2018. "From NY to LA: A Look at the Wage Phillips Curve Using Cross-Geographical Data," 2018 Meeting Papers 1290, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:1290
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    File URL: https://economicdynamics.org/meetpapers/2018/paper_1290.pdf
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    References listed on IDEAS

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    1. Nathan R. Babb & Alan K. Detmeister, 2017. "Nonlinearities in the Phillips Curve for the United States : Evidence Using Metropolitan Data," Finance and Economics Discussion Series 2017-070, Board of Governors of the Federal Reserve System (US).
    2. Kiley, Michael T., 2015. "An evaluation of the inflationary pressure associated with short- and long-term unemployment," Economics Letters, Elsevier, vol. 137(C), pages 5-9.
    3. Baltagi, Badi H. & Feng, Qu & Kao, Chihwa, 2016. "Estimation of heterogeneous panels with structural breaks," Journal of Econometrics, Elsevier, vol. 191(1), pages 176-195.
    4. repec:wly:iecrev:v:58:y:2017:i::p:57-94 is not listed on IDEAS
    5. Greg Kaplan & Sam Schulhofer‐Wohl, 2017. "Understanding The Long‐Run Decline In Interstate Migration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58, pages 57-94, February.
    6. Kumar, Anil & M. Orrenius, Pia, 2016. "A closer look at the Phillips curve using state-level data," Journal of Macroeconomics, Elsevier, vol. 47(PA), pages 84-102.
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