State-level wage Phillips curves

George Kapetanios, Simon Price, Menelaos Tasiou and Alexia Ventouri

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Two reduced-form versions of New Keynesian wage Phillips curves based on either sticky nominal wages or real-wage rigidity using monthly US state-level data for the period 1982-2016 are examined, taking account of the endogeneity of unemployment by instrumentation and the use of common correlated effects (CCE) and mean group (MG) methods. This is the first time that this methodology has been applied in this context. These are important issues, as ignoring them may lead to substantial biases. The results show that while the aggregate data do not provide estimates that are consistent with either of the theoretical models examined, the panel methods do. Moreover, use of an appropriate MG CCE estimator leads to economically significant changes in parameters (primarily a steeper Phillips curve) relative to those from inappropriate but widely used panel methods, and in the real-wage rigidity case is required to deliver results that have a theoretically admissible interpretation.

Keywords: Wage Phillips curves; state-level data; panel estimation; CCE (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2020-02
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: State-level wage Phillips curves (2021)
Working Paper: State-level wage Phillips curves (2020)
Working Paper: State-level wage Phillips curves (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2020-08

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