Unemployment rate and wage growth in Brazil: evidence from a Markov-switching model

Abstract

This paper has the purpose to investigate the relationship between unemployment rate and wage growth for the Brazilian economy from 2000 to 2016, by means of a Markov-switching regression model. The empirical approach is based on the New-Keynesian Phillips Curve developed by Galí (2011). The estimation results suggest the existence of two well defined regimes, one characterized by the non-validation of the Phillips Curve, while in the other the trade-off between unemployment and wage inflation is validated, with the economic cycle being a key factor in regime switching.

Keywords

• unemployment
• wage
• Markov switching
• NAIRU
• Phillips curve