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The Return of the European Wage Phillips Curve

Fabrice Orlandi, Werner Roeger and Anna Elisabeth Thum

No 85, European Economy - Discussion Papers 2015 - from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: 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.

JEL-codes: E24 E31 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-mac
Date: 2018-09
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