Type

Working Paper

Authors

Karl Whelan

Subjects

Economics

Topics
inflation unemployment effect of inflation on phillips curve wages effect of inflation on nairu unemployment rate e24 e31

Real wage dynamics and the Phillips Curve (1999)

Abstract Since Friedman (1968), the traditional derivation of the accelerationist Phillips curve has related expected real wage inflation to the unemployment rate and then invoked markup pricing and adaptive expectations to generate the accelerationist price inflation equation. Blanchflower and Oswald (1994) have argued that microeconomic evidence of a low autoregression coefficient in real wage regressions invalidates this approach, a conclusion that has been disputed widely on the grounds that the true autoregression coefficient is close to one. This paper shows that the accelerationist relationship between the change in price inflation and the unemployment rate is consistent with any type of microeconomic real wage dynamics. However, these dynamics will determine how supply shocks affect inflation. Evidence on supply shocks and inflation points against the traditional real wage formulation. Implications for the recent behavior of the NAIRU are explored.
Collections Ireland -> University College Dublin -> School of Economics
Ireland -> University College Dublin -> College of Social Sciences and Law
Ireland -> University College Dublin -> Economics Research Collection

Full list of authors on original publication

Karl Whelan

Experts in our system

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Karl Whelan
University College Dublin
Total Publications: 69