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How to disappear completely: non-linearity and endogeneity in the new keynesian wage Phillips curve

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  • Sebastião Abreu, Daniel
  • Silva Lopes, Artur

Abstract

We use a three-regime threshold regression model to assess the ability of the New Keynesian Wage Phillips Curve (NKWPC) to describe wage inflation in the U.S. over the 1965-2018 period. Non-linearity is clearly supported by the data and it easily resists an endogeneity correction. However, this correction exposes more clearly the shortcomings of the NKWPC as a successful description of wage dynamics in the extreme phases of the business cycles, when unemployment is either low or high. In both cases it becomes completely flat.

Suggested Citation

  • Sebastião Abreu, Daniel & Silva Lopes, Artur, 2019. "How to disappear completely: non-linearity and endogeneity in the new keynesian wage Phillips curve," MPRA Paper 94591, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:94591
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    References listed on IDEAS

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    1. repec:bla:jecsur:v:13:y:1999:i:5:p:551-76 is not listed on IDEAS
    2. Byrne, David & Zekaite, Zivile, 2018. "Missing wage growth in the euro area: is the wage Philips curve non-linear?," Economic Letters 9/EL/18, Central Bank of Ireland.
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    5. Galí, Jordi & Gambetti, Luca, 2019. "Has the U.S. Wage Phillips Curve Flattened? A Semi-Structural Exploration," CEPR Discussion Papers 13452, C.E.P.R. Discussion Papers.
    6. 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.
    7. Albuquerque, Bruno & Baumann, Ursel, 2017. "Will US inflation awake from the dead? The role of slack and non-linearities in the Phillips curve," Journal of Policy Modeling, Elsevier, vol. 39(2), pages 247-271.
    8. Kourtellos, Andros & Stengos, Thanasis & Tan, Chih Ming, 2016. "Structural Threshold Regression," Econometric Theory, Cambridge University Press, vol. 32(4), pages 827-860, August.
    9. Michael McLeay & Silvana Tenreyro, 2020. "Optimal Inflation and the Identification of the Phillips Curve," NBER Macroeconomics Annual, University of Chicago Press, vol. 34(1), pages 199-255.
    10. Hansen,B.E., 1999. "Testing for linearity," Working papers 7, Wisconsin Madison - Social Systems.
    11. Gonzalo, Jesus & Pitarakis, Jean-Yves, 2002. "Estimation and model selection based inference in single and multiple threshold models," Journal of Econometrics, Elsevier, vol. 110(2), pages 319-352, October.
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    Cited by:

    1. Andrew Phiri, 2022. "Pursuing the Phillips Curve in an African Monarchy: A Swazi Case Study," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 16(4), December.

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    More about this item

    Keywords

    Phillips curve; wage rigidity; threshold regression; endogeneity;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • 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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