IS THE PHILLIPS CURVE A UNICORN?

The new Keynesian wage Phillips curve (NKWPC) is derived from the standard new Keynesian Phillips curve (NKPC) that is examined and verified by many economists. The NKWPC model uses the structural wage equation to present the significant inverse relationship between wage inflation and the unemployment rate in the US economy with the significant assumption of a constant natural rate of unemployment. This study examines the NKWPC model using the generalized method of moments (GMM) and generalized autoregressive conditionally heteroskedastic-M (GARCH-M) to confirm the critical inverse relationship of the Phillips curve. In particular, this study tests the NKWPC separately targeting the official unemployment rate from Komlos (2019)’s real unemployment rate.
The estimated results of this study support the NKWPC re-confirming a significant negative relationship between wage inflation and unemployment, using two different econometric techniques of GMM and GARCH-M. Moreover, it is apparent that they do not distinguish the official unemployment rate from the real unemployment rate. The Phillips curve is not just a unicorn, or rarity, in the economic world. It is a substantial indicator and still holds merit. This study yields to another lending support to the importance of the Phillips curve.