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Laurence Ball, Robert Moffitt
NBER Working Paper No. 8421
Issued in August 2001
NBER Program(s): EFG
ME
---- Abstract -----
We present a model in which workers' aspirations for wage increases adjust slowly to shifts in productivity growth. The model yields a Phillips curve with a new variable: the gap between productivity growth and an average of past wage growth. Empirically, this variable shows up strongly in the U.S. Phillips curve. Including it explains the otherwise puzzling shift in the unemployment-inflation tradeoff since 1995.
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