Keywords: Phillips curve, wage curve, new keynesian economics
Abstract: Blanchflower and Oswald (1994) have argued that, in regional data, the
level of unemployment is related to the level of wages. This result
is at variance with the implications of the original Phillips curve
for regional data, which would predict that the change in wages ought
to be related to the unemployment rate. On the other hand, there is
considerable empirical support for the expectations-augmented Phillips
curve using macroeconomic data. I resolve this tension by showing
that a standard macroeconomic expectations-augmented Phillips curve
can be derived from microfoundations that begin with the wage curve.
Full paper (571 KB PDF)
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Last update: January 23, 1998