Prices, Wages and the U.S. NAIRU in the 1990s

87 Pages Posted: 7 Jun 2001 Last revised: 22 Oct 2010

See all articles by Douglas Staiger

Douglas Staiger

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

James H. Stock

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Mark W. Watson

Princeton University - Woodrow Wilson School of Public and International Affairs; National Bureau of Economic Research (NBER)

Date Written: June 2001

Abstract

Using quarterly macro data and annual state panel data, we examine various explanations of the low rate of price inflation, strong real wage growth, and low rate of unemployment in the U.S. economy during the late 1990s. Many of these explanations imply shifts in the coefficients of price and wage Phillips curves. We find, however, that once one accounts for the univariate trends in the unemployment rate and in the rate of productivity growth, these coefficients are stable. This suggests that many explanations, such as persistent beneficial supply shocks, changes in firms' pricing power, changes in price expectations arising from shifts in Fed policy, and changes in wage setting behavior miss the mark. Rather, we suggest that explanations of movements of wages, prices and unemployment over the 1990s, and indeed over the past forty years, must focus on understanding the univariate trends in the unemployment rate and in productivity growth and, perhaps, the relation between the two.

Suggested Citation

Staiger, Douglas and Stock, James H. and Watson, Mark W., Prices, Wages and the U.S. NAIRU in the 1990s (June 2001). NBER Working Paper No. w8320. Available at SSRN: https://ssrn.com/abstract=272682

Douglas Staiger (Contact Author)

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States
603-643-2979 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

James H. Stock

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-496-0502 (Phone)
617-496-5960 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Mark W. Watson

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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