Monetary Policy and the Wage Inflation-Unemployment Tradeoff

Over the last years, many have been questioning the importance of the Phillips curve arguing that it has flatten out of favour. Thus, a lot of attention has been given to understand why its slope is flatter and how can central bankers still explore it. Building on this current debate, I estimate historical wage Phillips curves by using newly assembled data on wages and unemployment rates for a set of 17 advanced economies starting in 1870. I show that the wage Phillips curve has always been alive and well but, similarly to recent times, it was flatter during the Gold Standard. The collected data suggest that a low price inflation environment promotes this disconnect, which is aligned with the New Keynesian model predictions. In such an environment, wages and prices are adjusted by firms less often and thus, the relationship between unemployment and wage inflation becomes weaker.