EconPapers    
Economics at your fingertips  
 

Missing wage inflation? Estimating the natural rate of unemployment in a nonlinear DSGE model

Yuto Iwasaki, Ichiro Muto and Mototsugu Shintani

European Economic Review, 2021, vol. 132, issue C

Abstract: During the recovery from the global financial crisis, most advanced economies have experienced a surprisingly weak response of wage inflation to the decline in unemployment. In this study, we investigate whether downward wage rigidity (DWR) is the source of the flattening wage Phillips curve and the lack of wage inflation in the four advanced economies: Japan, the euro area, the UK and the US. We estimate a nonlinear New Keynesian model with asymmetric wage adjustment costs and the natural rate of unemployment. Wage adjustment costs are found to be highly asymmetric in Japan, the euro area and the UK, but not in the US. The L-shaped wage Phillips curves between wage inflation and the unemployment gap clearly emerge in these three economies. Our policy simulations present a possibility that the missing wage inflation is not a permanent phenomenon and wage inflation is likely to reappear with further improvement in the labor market. Our analysis shows the usefulness of incorporating DWR into models for understanding the background of missing wage inflation and obtaining monetary policy implications.

Keywords: Downward wage rigidity; Natural rate of unemployment; Phillips curve; Particle filter (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292120302567
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Missing Wage Inflation? Estimating the Natural Rate of Unemployment in a Nonlinear DSGE Model (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:132:y:2021:i:c:s0014292120302567

DOI: 10.1016/j.euroecorev.2020.103626

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2022-08-20
Handle: RePEc:eee:eecrev:v:132:y:2021:i:c:s0014292120302567