Does the labour share of income drive inflation?

Files in This Item:
File Description SizeFormat 
whelank_workpap_014.pdf226.93 kBAdobe PDFDownload
Title: Does the labour share of income drive inflation?
Authors: Rudd, Jeremy
Whelan, Karl
Permanent link:
Date: Jun-2002
Online since: 2008-06-12T13:48:43Z
Abstract: Woodford (2001) has presented evidence that the new-Keynesian Phillips curve fits the empirical behavior of inflation well when the labor income share is used as a driving variable, but fits poorly when deterministically detrended output is used. He concludes that the output gap - the deviation between actual and potential output - is better captured by the labor income share, in turn implying that central banks should raise interest rates in response to increases in the labor share. We show that the empirical evidence generally suggests that the labor share version of the new-Keynesian Phillips curve is a very poor model of price inflation. We conclude that there is little reason to view the labor income share as a good measure of the output gap, or as an appropriate variable for incorporation in a monetary policy rule.
Type of material: Technical Report
Publisher: Central Bank of Ireland
Series/Report no.: Central Bank of Ireland Research Technical Paper; 2/RT/02
Copyright (published version): 2002 Copyright Central Bank of Ireland
Subject LCSH: Inflation (Finance)--United States
Labor market--United States
Phillips curve
Other versions:
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Research Collection

Show full item record

Page view(s) 50

checked on May 25, 2018

Download(s) 50

checked on May 25, 2018

Google ScholarTM


This item is available under the Attribution-NonCommercial-NoDerivs 3.0 Ireland. No item may be reproduced for commercial purposes. For other possible restrictions on use please refer to the publisher's URL where this is made available, or to notes contained in the item itself. Other terms may apply.