2020 Market Power, NAIRU, and the Phillips Curve
Derek Zweig
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Abstr. Appl. Anal. 2020: 1-18 (2020). DOI: 10.1155/2020/7083981


We explore the relationship between unemployment and inflation in the United States (1949-2019) through both Bayesian and spectral lenses. We employ Bayesian vector autoregression (“BVAR”) to expose empirical interrelationships between unemployment, inflation, and interest rates. Generally, we do find short-run behavior consistent with the Phillips curve, though it tends to break down over the longer term. Emphasis is also placed on Phelps’ and Friedman’s NAIRU theory using both a simplistic functional form and BVAR. We find weak evidence supporting the NAIRU theory from the simplistic model, but stronger evidence using BVAR. A wavelet analysis reveals that the short-run NAIRU theory and Phillips curve relationships may be time-dependent, while the long-run relationships are essentially vertical, suggesting instead that each relationship is primarily observed over the medium-term (2-10 years), though the economically significant medium-term region has narrowed in recent decades to roughly 4-7 years. We pay homage to Phillips’ original work, using his functional form to compare potential differences in labor bargaining power attributable to labor scarcity, partitioned by skill level (as defined by educational attainment). We find evidence that the wage Phillips curve is more stable for individuals with higher skill and that higher skilled labor may enjoy a lower natural rate of unemployment.


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Derek Zweig. "Market Power, NAIRU, and the Phillips Curve." Abstr. Appl. Anal. 2020 1 - 18, 2020. https://doi.org/10.1155/2020/7083981


Received: 30 June 2020; Accepted: 11 November 2020; Published: 2020
First available in Project Euclid: 28 July 2020

Digital Object Identifier: 10.1155/2020/7083981

Rights: Copyright © 2020 Hindawi


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