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Has the wage Phillips curve changed in the euro area?

Guido BUlligan () and Eliana Viviano
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Guido BUlligan: Banca d'Italia

No 355, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Increasing evidence shows that after a flattening occurred in the immediate aftermath of the global financial crisis, the relationship between price inflation and economic slack became stronger in the euro area. By contrast, there is no clear evidence of a strong(er) relationship between wage inflation and unemployment. In this paper we estimate a standard Phillips curve with time-varying coefficients separately for Italy, Spain, Germany and France. We find that, with the exception of Germany, after the global financial crisis the sensitivity of hourly wage changes to labour market slack increased. Second, using administrative microdata available only for Italy, we relate daily wage changes to the local unemployment rate. The results confirm the steepening of the Phillips curve after 2008, also when controlling for composition effects.

Keywords: wage growth; Phillips curve; parameter instability JEL Classification: E24; E31; E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-mac and nep-sog
Date: 2016-09
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