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Title: The Return of the Wage Phillips Curve

Author(s): Jordi Galí

Publication Date: February 2010

Keyword(s): New Keynesian model, staggered nominal wage setting and unemployment fluctuations

Programme Area(s): International Macroeconomics

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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Bibliographic Reference

Galí, J. 2010. 'The Return of the Wage Phillips Curve'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7700