The Return of the European Wage Phillips Curve

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Series Details Number 85
Publication Date 21/09/2018
ISBN 978-92-79-77422-5
ISSN 2443-8022
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In this paper we compare the accelerationist Phillips curve to the New-Keynesian Wage Phillips curve in Euro Area countries which went through major swings in the unemployment rate in recent years. We find that the New-Keynesian wage Phillips curve signals cyclical fluctuations in unemployment more clearly and yields less pro-cyclical estimates of the NAWRU in four crisis-hit EU member states (Greece, Spain, Ireland and Portugal) than a traditional Phillips curve model, which may not treat price rigidities adequately. Slightly augmenting the NKP model by allowing for real wage rigidities further improves the extraction of a cyclical unemployment component.

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