Phillips Wage Curve New-Keynesian for Brazil: New evidence with regional data

Abstract

The present study aims to empirically verify the New Keynesian Wage Phillips Curve (NKWPC) for Brazil using state-level data. The theoretical framework is based on the NKWPC developed by Galí (2011) and its regional disaggregation within a monetary union, as proposed by Levy (2019). The empirical strategy employs data from PNADC and Ipeadata between the second quarter of 2012 and the second quarter of 2023, within a Panel Vector Autoregressive framework using the Generalized Method of Moments (PVAR GMM). According to the main results, following a 1 standard deviation shock to the unemployment rate gap, a significant decrease of -0.27 percentage points is observed in nominal wage growth in the first quarter, followed by a more pronounced impact of -0.89 percentage points in the second quarter. Subsequently, the wage growth trajectory converges to its long-term path, resulting in a cumulative impact of -0.95 percentage points on wage growth after eight quarters.