IDEAS home Printed from https://ideas.repec.org/p/fip/fedgfe/2015-42.html
   My bibliography  Save this paper

The Passthrough of Labor Costs to Price Inflation

Author

Abstract

We use a time-varying parameter/stochastic volatility VAR framework to assess how the passthrough of labor costs to price inflation has evolved over time in U.S. data. We find little evidence that changes in labor costs have had a material effect on price inflation in recent years, even for compensation measures where some degree of passthrough to prices still appears to be present. Our results cast doubt on explanations of recent inflation behavior that appeal to such mechanisms as downward nominal wage rigidity or a differential contribution of long-term and short-term unemployed workers to wage and price pressures.

Suggested Citation

  • Ekaterina V. Peneva & Jeremy B. Rudd, 2015. "The Passthrough of Labor Costs to Price Inflation," Finance and Economics Discussion Series 2015-42, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2015-42
    DOI: 10.17016/FEDS.2015.042
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/econresdata/feds/2015/files/2015042pap.pdf
    File Function: Full text
    Download Restriction: no
    File URL: http://dx.doi.org/10.17016/FEDS.2015.042
    File Function: http://dx.doi.org/10.17016/FEDS.2015.042
    Download Restriction: no
    File URL: https://libkey.io/10.17016/FEDS.2015.042?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Clark, Todd E. & Davig, Troy, 2011. "Decomposing the declining volatility of long-term inflation expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 981-999, July.
    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. Mary C. Daly & Bart Hobijn, 2014. "Downward Nominal Wage Rigidities Bend the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(S2), pages 51-93, October.
    4. Laurence Ball & Sandeep Mazumder, 2011. "Inflation Dynamics and the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 337-405.
    5. Timothy Cogley & Thomas J. Sargent, 2005. "Drift and Volatilities: Monetary Policies and Outcomes in the Post WWII U.S," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 262-302, April.
    6. Robert J. Gordon, 2013. "The Phillips Curve is Alive and Well: Inflation and the NAIRU During the Slow Recovery," NBER Working Papers 19390, National Bureau of Economic Research, Inc.
    7. Alan S. Blinder & Jeremy B. Rudd, 2013. "The Supply-Shock Explanation of the Great Stagflation Revisited," NBER Chapters, in: The Great Inflation: The Rebirth of Modern Central Banking, pages 119-175, National Bureau of Economic Research, Inc.
    8. Todd E. Clark & Stephen J. Terry, 2010. "Time Variation in the Inflation Passthrough of Energy Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1419-1433, October.
    9. Yash P. Mehra, 2000. "Wage-price dynamics : are they consistent with cost push?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 27-43.
    10. Michael D. Bordo & Athanasios Orphanides, 2013. "The Great Inflation: The Rebirth of Modern Central Banking," NBER Books, National Bureau of Economic Research, Inc, number bord08-1.
    11. Koop, Gary & Potter, Simon M., 2011. "Time varying VARs with inequality restrictions," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1126-1138, July.
    12. G. Elliott & C. Granger & A. Timmermann (ed.), 2013. "Handbook of Economic Forecasting," Handbook of Economic Forecasting, Elsevier, edition 1, volume 2, number 2.
    13. Mark W. Watson, 2014. "Inflation Persistence, the NAIRU, and the Great Recession," American Economic Review, American Economic Association, vol. 104(5), pages 31-36, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Joshua C.C. Chan & Todd E. Clark & Gary Koop, 2018. "A New Model of Inflation, Trend Inflation, and Long‐Run Inflation Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(1), pages 5-53, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ekaterina V. Peneva & Jeremy B. Rudd, 2017. "The Passthrough of Labor Costs to Price Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(8), pages 1777-1802, December.
    2. Janet L. Yellen, 2015. "Inflation Dynamics and Monetary Policy : A speech at the Philip Gamble Memorial Lecture, University of Massachusetts, Amherst, Amherst, Massachusetts, September 24, 2015," Speech 863, Board of Governors of the Federal Reserve System (U.S.).
    3. D'Agostino, Antonello & Mendicino, Caterina, 2014. "Expectation-Driven Cycles: Time-varying Effects," MPRA Paper 53607, University Library of Munich, Germany.
    4. Marco Del Negro & Michele Lenza & Giorgio E. Primiceri & Andrea Tambalotti, 2020. "What's Up with the Phillips Curve?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 51(1 (Spring), pages 301-373.
    5. Böhl, Gregor & Lieberknecht, Philipp, 2021. "The hockey stick Phillips curve and the zero lower bound," IMFS Working Paper Series 153, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    6. Sune Karlsson & Pär Österholm, 2020. "A note on the stability of the Swedish Phillips curve," Empirical Economics, Springer, vol. 59(6), pages 2573-2612, December.
    7. Cecchetti, Stephen & Feroli, Michael & Hooper, Peter & Kashyap, Anil & Schoenholtz, Kermit L., 2017. "Deflating Inflation Expectations: The Implications of Inflation’s Simple Dynamics," CEPR Discussion Papers 11925, C.E.P.R. Discussion Papers.
    8. Böhl, Gregor & Lieberknecht, Philipp, 2021. "The hockey stick Phillips curve and the effective lower bound," Discussion Papers 55/2021, Deutsche Bundesbank.
    9. Alexander Doser & Ricardo Nunes & Nikhil Rao & Viacheslav Sheremirov, 2023. "Inflation expectations and nonlinearities in the Phillips curve," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(4), pages 453-471, June.
    10. Michael T. Kiley, 2024. "Anchored or Not: How Much Information Does 21st Century Data Contain on Inflation Dynamics?," International Journal of Central Banking, International Journal of Central Banking, vol. 20(1), pages 239-261, February.
    11. Imad Moosa & Basil Al-Nakeeb, 2020. "An augmented P-Star model of US inflation," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(4), pages 555-566, December.
    12. Aguiar-Conraria, Luís & Martins, Manuel M.F. & Soares, Maria Joana, 2023. "The Phillips curve at 65: Time for time and frequency," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).
    13. Sune Karlsson & Pär Österholm, 2023. "Is the US Phillips curve stable? Evidence from Bayesian vector autoregressions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 125(1), pages 287-314, January.
    14. Hauzenberger, Niko, 2021. "Flexible Mixture Priors for Large Time-varying Parameter Models," Econometrics and Statistics, Elsevier, vol. 20(C), pages 87-108.
    15. Lieberknecht, Philipp, 2018. "Financial Frictions, the Phillips Curve and Monetary Policy," MPRA Paper 89429, University Library of Munich, Germany.
    16. Berge, Travis J., 2018. "Understanding survey-based inflation expectations," International Journal of Forecasting, Elsevier, vol. 34(4), pages 788-801.
    17. Bańbura, Marta & Bobeica, Elena, 2023. "Does the Phillips curve help to forecast euro area inflation?," International Journal of Forecasting, Elsevier, vol. 39(1), pages 364-390.
    18. Laurence Ball & Sandeep Mazumder, 2019. "A Phillips Curve with Anchored Expectations and Short‐Term Unemployment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(1), pages 111-137, February.
    19. Claudio Borio, 2017. "Secular stagnation or financial cycle drag?," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 52(2), pages 87-98, April.
    20. Annalisa Cristini & Piero Ferri, 2021. "Nonlinear models of the Phillips curve," Journal of Evolutionary Economics, Springer, vol. 31(4), pages 1129-1155, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2015-42. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ryan Wolfslayer ; Keisha Fournillier (email available below). General contact details of provider: https://edirc.repec.org/data/frbgvus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.