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The Return of the Wage Phillips Curve

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  • Galí, Jordi

Abstract

The standard New Keynesian model with staggered wage setting is shown to imply a simple dynamic relation between wage inflation and unemployment. Under some assumptions, that relation takes a form similar to that found in empirical applications--starting with the original Phillips (1958) curve--and may thus be viewed as providing some theoretical foundations to the latter. The structural wage equation derived here is shown to account reasonably well for the comovement of wage inflation and the unemployment rate in the U.S. economy, even under the strong assumption of a constant natural rate of unemployment.

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  • Galí, Jordi, 2010. "The Return of the Wage Phillips Curve," CEPR Discussion Papers 7700, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7700
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    More about this item

    Keywords

    New keynesian model; Staggered nominal wage setting; Unemployment fluctuations;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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