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dc.contributor.authorReitz, Stefanen_US
dc.contributor.authorSlopek, Ulf D.en_US
dc.description.abstractWhereas microeconomic studies point to pronounced downward rigidity of nominal wages in the US economy, the standard Phillips curve neglects such a feature. Using a stochastic frontier model we find macroeconomic evidence of a strictly nonnegative error in an otherwise standard Phillips curve in post-war data on the US nonfinancial corporate sector. This error depends on growth in the profit ratio, output, and trend productivity, which should all determine the flexibility of wage adjustments. As the error usually surges during an economic downturn, the empirical model suggests that the downward pressure on inflation arising from higher unemployment in a standard Phillips curve framework is significantly cushioned. This might help to understand the robustness of inflation especially in the most recent past. In general, the cyclical dynamics of inflation appear to be more complex than captured by a conventional Phillips curve.en_US
dc.publisher|aKiel Institute for the World Economy (IfW) |cKielen_US
dc.relation.ispartofseries|aKiel Working Paper |x1795en_US
dc.subject.keywordwage rigiditiesen_US
dc.subject.keywordinflation dynamicsen_US
dc.subject.keywordstochastic frontier modelen_US
dc.titleFixing the Phillips curve: The case of downward nominal wage rigidity in the USen_US
dc.typeWorking Paperen_US

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