Monetary Policy and the Wage Inflation-Unemployment Tradeoff

34 Pages Posted: 27 Oct 2020 Last revised: 6 May 2022

See all articles by Ricardo Duque Gabriel

Ricardo Duque Gabriel

University of Bonn - Department of Economics

Date Written: May 1, 2022

Abstract

Using newly assembled data for 18 advanced economies between 1870 and 2020, I study how monetary policy affects wage inflation and unemployment and document two key findings regarding their tradeoff. First, the wage Phillips curve displays a time-varying slope. Second, the tradeoff becomes weaker in low price inflation environments due to a more pronounced unemployment response to monetary policy. These findings lend support to the idea that monetary policy has state-dependent effects with the central banks' ability in exploring the tradeoff being impaired by a low price inflation environment.

Keywords: Phillips curve, Phillips multiplier, wage inflation, unemployment, monetary policy, economic history

JEL Classification: E24, E31, E52, N10

Suggested Citation

Gabriel, Ricardo Duque, Monetary Policy and the Wage Inflation-Unemployment Tradeoff (May 1, 2022). Available at SSRN: https://ssrn.com/abstract=3689791 or http://dx.doi.org/10.2139/ssrn.3689791

Ricardo Duque Gabriel (Contact Author)

University of Bonn - Department of Economics ( email )

Bonn
Germany

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