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An empirical study on the New Keynesian wage Phillips curve: Japan and the US

  • Ichiro Muto EMAIL logo and Kohei Shintani
Published/Copyright: June 5, 2017

Abstract

We compare aggregate wage dynamics in Japan and the US from 1970 to 2013 from the perspective of the New Keynesian wage Phillips curve (NKWPC), derived by [Galí, Jordi. 2011a. “The Return of the Wage Phillips Curve.” Journal of the European Economic Association 9 (3): 436–461.]. We consider time variations in NKWPC’s parameters and make comparisons with micro-based evidence. Our main findings are three-fold. First, although Japan’s NKWPC has flattened over time, the slope of the NKWPC is much steeper in Japan than in the US. This suggests that nominal wage changes are less frequent in the US than in Japan. Second, inflation indexation, more prevalent in Japan in earlier periods, has recently become more important in the US although its role has declined over time in both countries. Third, our macro-level empirical results on the NKWPC are generally in line with micro-based evidence in each country, which suggests that the NKWPC provides a reasonable platform for modeling aggregate wage dynamics.

JEL Classification: E24; E31; E32

Acknowledgments

The authors are also grateful to Kosuke Aoki, Ichiro Fukunaga, Daisuke Ikeda, Koichiro Kamada, Seisaku Kameda, Mitsuru Katagiri, Munechika Katayama, Ryo Kato, Tomiyuki Kitamura, Takushi Kurozumi, Eiji Maeda, Koji Nakamura, Kenji Nishizaki, Takemasa Oda, Hiroyuki Oi, Takayuki Tsuruga, Isamu Yamamoto, and the participants at 2014 Japanese Economic Association Annual Spring Meeting and Asian Meeting of the Econometric Society 2014 for their advice and comments. We are also indebted to Editor Karel Mertens and an anonymous referee for helpful comments. The views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan.

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Published Online: 2017-06-05

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