How to disappear completely: nonlinearity and endogeneity in the New Keynesian Wage Phillips Curve

Daniel Sebastião Abreu and Artur Silva Lopes ()

Applied Economics Letters, 2021, vol. 28, issue 9, 774-778

Abstract: We use a three-regime threshold regression model to assess the ability of the New Keynesian Wage Phillips Curve (NKWPC) to describe wage inflation in the US over the 1965–2018 period. Nonlinearity is clearly supported by the data and it easily resists an endogeneity correction. However, this correction exposes more clearly the shortcomings of the NKWPC as a successful description of wage dynamics in the extreme phases of the business cycles, when unemployment is either low or high. In both cases, it becomes completely flat.

Date: 2021
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Working Paper: How to disappear completely: non-linearity and endogeneity in the new keynesian wage Phillips curve (2019)
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DOI: 10.1080/13504851.2020.1781763

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