Prices, Wages and the U.S. NAIRU in the 1990s

Douglas Staiger, James H. Stock, Mark W. Watson

NBER Working Paper No. 8320
Issued in June 2001
NBER Program(s):   EFG   ME

Using quarterly macro data and annual state panel data, we examine various explanations of the low rate of price inflation, strong real wage growth, and low rate of unemployment in the U.S. economy during the late 1990s. Many of these explanations imply shifts in the coefficients of price and wage Phillips curves. We find, however, that once one accounts for the univariate trends in the unemployment rate and in the rate of productivity growth, these coefficients are stable. This suggests that many explanations, such as persistent beneficial supply shocks, changes in firms' pricing power, changes in price expectations arising from shifts in Fed policy, and changes in wage setting behavior miss the mark. Rather, we suggest that explanations of movements of wages, prices and unemployment over the 1990s, and indeed over the past forty years, must focus on understanding the univariate trends in the unemployment rate and in productivity growth and, perhaps, the relation between the two.

download in pdf format
   (508 K)

email paper

This paper is available as PDF (508 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w8320

Published: Krueger, Alan B. and Robert Solow (eds.) The Roaring ‘90s: Can Full Employment Be Sustained. New York: Russell Sage and Century Fund, 2001.

Users who downloaded this paper also downloaded these:
Staiger, Stock, and Watson How Precise Are Estimates of the Natural Rate of Unemployment?
Ball and Mankiw w8940 The NAIRU in Theory and Practice
Gordon w5735 The Time-Varying NAIRU and its Implications for Economic Policy
Staiger, Stock, and Watson w5477 How Precise are Estimates of the Natural Rate of Unemployment?
Estrella and Mishkin Rethinking the Role of NAIRU in Monetary Policy: Implications of Model Formulation and Uncertainty
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us