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Working Paper
The Death of the Phillips Curve?
Are inflation dynamics well captured by Phillips Curve models, or has this framework become less relevant over time? The evidence for the U.S. suggests that the slopes of the price and wage Phillips Curves? the short-run inflation-unemployment trade-offs ? are low and have got a little flatter. For example, the recursive estimate of the unemployment coefficient in the core PCE Phillips Curve has fallen a little from -0.09 to -0.07 since the Great Recession. However, the decline is not statistically significant. Dynamic forecasts from the wage and price Phillips Curves estimated using data ...
Journal Article
Price Stability Built to Last
The economy is healthy and price stability is within sight. But progress is not victory, and considerable uncertainty and risks remain. To finish the job will take fortitude and patience, along with the agility to respond as the economy evolves. The following is adapted from the keynote address by the president of the Federal Reserve Bank of San Francisco at the 40th Annual NABE Economic Policy Conference in Washington, DC, on February 16.
Working Paper
The Role of Wages in Trend Inflation: Back to the 1980s?
This paper examines whether the measurement of trend inflation can be improved by using wage data in a dynamic factor model of disaggregated prices and wages for the United States. The model features time-varying coefficients and stochastic volatility. An estimate of trend inflation is a time-varying distributed lag of prices and wages, where the weight on a series depends on its time-varying volatility, persistence, and comovement with other series. The results show that wages inform estimates of trend inflation. The weight on wages was highest around 1980, drifted down through the 2000s, ...
Working Paper
Non-Linear Phillips Curves with Inflation Regime-Switching
Building on the results in Nalewaik (FEDS 2015-93), this work models wage growth and core PCE price inflation as regime-switching processes, whose characteristics in the 1970s, 1980s and early 1990s differ fundamentally from their characteristics in the 1960s and from the mid-1990s to present. The key innovation here is the addition to the models of fundamental driving variables like labor-market slack, and the evidence strongly suggests a non-linear effect of slack on wage growth and core PCE price inflation that becomes much larger after labor markets tighten beyond a certain point. The ...
Report
A Measure of Core Wage Inflation
We recover the persistent (“core”) component of nominal wage growth over the past twenty-five years in the United States. Our approach combines worker-level data with time-series smoothing methods and can disentangle the common persistence of wage inflation from the persistence specific to some subgroup of workers, such as workers in a specific industry. We find that most of the business cycle fluctuations in wage inflation are persistent and driven by a common factor. This common persistent factor is particularly important during inflationary periods, and it explains 80 to 90 percent of ...
Report
Wage inflation and informal work
Despite very low unemployment in the United States in recent months, wage inflation has remained modest. This paper investigates the possibility that there is hidden labor market slack in the form of informal or gig economy work, which may help explain this wage growth puzzle. Using unique data from 2015 and 2016 that we collected through the Survey of Informal Work Participation ? part of the Federal Reserve Bank of New York?s Survey of Consumer Expectations ? we find indirect and direct evidence for this hypothesis. First, we find that a measure of informal labor is negatively associated ...
Discussion Paper
Pandemic Wage Pressures
The recovery since the onset of the pandemic has been characterized by a tight labor market and rising nominal wage growth. In this post, we look at labor market conditions from a more granular, sectoral point of view focusing on data covering the nine major industries. This breakdown is motivated by the exceptionality of the pandemic episode, the way it has asymmetrically affected sectors of the economy, and by the possibility of exploiting sectoral heterogeneities to understand the drivers of recent labor market dynamics. We document that wage pressures are highest in the sectors with the ...
Tracking Wage Inflation in Real Time
High-frequency wage data from private sources, such as Homebase, can provide timely insight into the current state of U.S. wage inflation.
Newsletter
Inflation Expectations, the Phillips Curve, and the Fed’s Dual Mandate
This Summer 2021 issue of Page One Economics describes how to think about stable prices, how inflation has evolved in recent years, how the relationship between inflation and employment is changing, and what the Federal Open Market Committee (FOMC) has recently stated about its strategy to meet its price stability goal.