Downward Nominal Wage Rigidities Bend the Phillips Curve

2013-08 | January 1, 2014

We introduce a model of monetary policy with downward nominal wage rigidities and show that both the slope and curvature of the Phillips curve depend on the level of inflation and the extent of downward nominal wage rigidities. This is true for the both the long-run and the short-run Phillips curve. Comparing simulation results from the model with data on U.S. wage patterns, we show that downward nominal wage rigidities likely have played a role in shaping the dynamics of unemployment and wage growth during the last three recessions and subsequent recoveries.

Article Citation

Hobijn, Bart, and Mary C. Daly. 2013. “Downward Nominal Wage Rigidities Bend the Phillips Curve,” Federal Reserve Bank of San Francisco Working Paper 2013-08. Available at https://doi.org/10.24148/wp2013-08

About the Author
Mary C. Daly
Mary C. Daly is president and CEO of the Federal Reserve Bank of San Francisco. Learn more about Mary C. Daly