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Wage curve vs. Phillips curve: are there macroeconomic implications?

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  • Karl Whelan

Abstract

The standard derivation of the accelerationist Phillips curve relates expected real wage inflation to the unemployment rate and invokes a constant price markup and adaptive expectations to generate the accelerationist price inflation formula. Blanchflower and Oswald (1994) argue that microeconomic evidence of a low autoregression coefficient in real wage regressions invalidates the macroeconomic Phillips curve. This conclusion has been disputed by a number of authors on the grounds that the true autoregression coefficient is close to 1. This paper shows that given the assumption of a constant price markup, micro-level real wage dynamics have no observable implications for macro data on wage and price inflation.

Suggested Citation

  • Karl Whelan, 1997. "Wage curve vs. Phillips curve: are there macroeconomic implications?," Finance and Economics Discussion Series 1997-51, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:1997-51
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    References listed on IDEAS

    as
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    Cited by:

    1. Shahbaz, Muhammad & Islam , Faridul & Shabbir, Muhammad Shahbaz, 2012. "Phillips Curve in a Small Open Economy: A Time Series Exploration of North Cyprus," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 35(4), pages 113-130, December.
    2. repec:bdr:ensayo:v::y:2003:i:43:p:66-85 is not listed on IDEAS
    3. David G. Blanchflower & Andrew J. Oswald, 2005. "The Wage Curve Reloaded," NBER Working Papers 11338, National Bureau of Economic Research, Inc.
    4. Enrique López E & Martha Misas A, 1998. "Un Examen Empírico De La Curva De Phillips En Colombia," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 17(34), pages 39-87, December.
    5. Fabiani, Silvia & Mestre, Ricardo, 2000. "Alternative measures of the NAIRU in the euro area: estimates and assessment," Working Paper Series 0017, European Central Bank.
    6. Robert G Murphy & Adam Rohde, 2018. "Rational Bias in Inflation Expectations," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 44(1), pages 153-171, January.
    7. Dobrescu, Emilian, 2006. "Double-Conditioned Potential Output," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 3(1), pages 32-50, March.
    8. Andrey Shilov & Joachim Mueller, 2008. "Wage curve: theory and empirics (in Russian)," Quantile, Quantile, issue 4, pages 93-100, March.
    9. 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.
    10. Dobrescu, Emilian, 2006. "Macromodel of the Romanian market economy (version 2005)," MPRA Paper 35749, University Library of Munich, Germany.
    11. Javier G. Gómez-Pineda, 2003. "Wage Indexation, Inflation Inertia, and the Cost of Disinflation," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 21(43), pages 66-85, June.
    12. Ross Garnaut & David Vines, 2023. "Monetary Policy Mistakes and Remedies: An Assessment Following the RBA Review," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(3), pages 273-287, September.
    13. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, vol. 89(2), pages 69-74, May.
    14. Daniel Aaronson & Daniel G. Sullivan, 2000. "Unemployment and wage growth: recent cross-state evidence," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 25(Q II), pages 41-54.
    15. Dobrescu, Emilian, 2006. "Integration of macroeconomic behavioural relationships and the input-output block: Romanian modelling experience," MPRA Paper 35748, University Library of Munich, Germany.
    16. Pant, Hom & Warr, Peter, 2016. "Modelling Involuntary Unemployment in Applied GE Models," Conference papers 332799, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    17. Laurence Ball, 1999. "Aggregate demand and Long-Run Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 189-252.

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    More about this item

    Keywords

    Wages; Macroeconomics;

    JEL classification:

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

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