| Publisher | Federal Reserve Board | ||
|---|---|---|---|
| Format | 179.3KB PDF, requires Acrobat Rdr 5 | Date added | 01 Dec 1999 |
| Topics | Economic Modeling | ||
| Downloads | 5 | ||
Since Friedman (1968), the traditional derivation of the accelerationist Phillips curve has related expected real wage inflation to the unemployment rate and then invoked markup pricing and adaptive expectations to generate the accelerationist price inflation equation. This paper shows that the accelerationist relationship between the change in price inflation and the unemployment rate is consistent with any type of microeconomic real wage dynamics. However, these dynamics will determine how supply shocks affect inflation. Evidence on supply shocks and inflation points against the traditional real wage formulation. Implications for the recent behavior of the NAIRU are explored.
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