Testing Wage and Price Phillips Curves for the United States

32 Pages Posted: 26 Oct 2007

See all articles by Peter Flaschel

Peter Flaschel

Bielefeld University - Department of Business Administration and Economics

Göran Kauermann

Technische Universität Berlin (TU Berlin)

Willi Semmler

The New School - Department of Economics; Universitaet Bielefeld; IIASA

Abstract

This paper demonstrates how the labour and product markets interact in determining as outcome a generalized reduced-form price Phillips curve. For the labour market we consider a wage Phillips curve and for the product market a price Phillips curve. We estimate separately the wage and price Phillips curves for the USA, using ordinary least squares, non-parametric estimation and three-stage least squares techniques. The finding is that wages are always more flexible than prices with respect to their respective demand pressure and that price inflation responds somewhat more to a medium-run cost pressure than does wage inflation. The implications for macroeconomic stability are demonstrated. We also show - as a link between product and labour markets - that employment is related to output as Okun's law states. In comparing linear and non-linear estimates of the wage and price Phillips curves we find furthermore that for some relationships non-linearities are important while not for others. Although overall the non-linear estimates tend to confirm our linear estimates, non-linearities in some relationships of the Phillips curve are important as well.

Suggested Citation

Flaschel, Peter and Kauermann, Göran and Semmler, Willi, Testing Wage and Price Phillips Curves for the United States. Metroeconomica, Vol. 58, No. 4, pp. 550-581, November 2007. Available at SSRN: https://ssrn.com/abstract=1024338 or http://dx.doi.org/10.1111/j.1467-999X.2007.00283.x

Peter Flaschel (Contact Author)

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany

Göran Kauermann

Technische Universität Berlin (TU Berlin) ( email )

Straße des 17
Berlin, 10623
Germany

Willi Semmler

The New School - Department of Economics ( email )

65 Fifth Avenue
New York, NY 10003
United States

HOME PAGE: http://www.newschool.edu/nssr/faculty/?id=4e54-6b79-4e41-3d3d

Universitaet Bielefeld ( email )

Universitätsstraße 25
Bielefeld, NRW
Germany

IIASA ( email )

Schlossplatz 1
Laxenburg/Austria, A-2361
Austria

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