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State-level wage Phillips curves

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Based on US state-level data for the period 1982-2016, two reduced-form versions of New Keynesian wage Phillips curves are examined. These are based on either sticky nominal wages or real-wage rigidity. The endogeneity of unemployment is taken into account 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. In the real-wage rigidity case, this is required to deliver results that have a theoretically admissible interpretation.
Original languageEnglish
JournalEconometrics and Statistics
Early online date13 Apr 2020
Publication statusEarly online - 13 Apr 2020


  • TASIOU_2020_cright_ES_State_level_wage_Phillips_curves

    Accepted author manuscript (Post-print), 807 KB, PDF document

    Due to publisher’s copyright restrictions, this document is not freely available to download from this website until: 13/04/21

    Licence: CC BY-NC-ND

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