Munich Personal RePEc Archive

How to disappear completely: non-linearity and endogeneity in the new keynesian wage Phillips curve

Sebastião Abreu, Daniel and Silva Lopes, Artur (2019): How to disappear completely: non-linearity and endogeneity in the new keynesian wage Phillips curve.

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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 U.S. over the 1965-2018 period. Non-linearity 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.

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