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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Wage Curve vs. Phillips Curve: Are There Macroeconomic Implications?
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.

Keywords: Inflation, wage curve, Phillips curve

Full paper (205 KB PDF) | Full paper (192 KB Postscript)

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Last update: January 27, 1998