Inconvenient Truths
The previous chapter introduced three new theoretical concepts: defensive expectations, compensatory savings and the cumulative wage gap. This chapter presents the empirical evidence behind these ideas. First, it shows that downward wage flexibility is fr
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Defensive Expectations Reinventing the Phillips Curve as a Policy Mix
Defensive Expectations
Liviu Voinea
Defensive Expectations Reinventing the Phillips Curve as a Policy Mix
Liviu Voinea OEDNE International Monetary Fund Washington, DC, USA
ISBN 978-3-030-55044-8 ISBN 978-3-030-55045-5 (eBook) https://doi.org/10.1007/978-3-030-55045-5 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
To my mother, Maria, and to my wife, Laura
Acknowledgements
I would like to express my gratitude to Horatiu Lovin, who contributed with research assistance and documentation support; and to Prakash Loungani, Paul Hilbers, Richard Doornbosch, Pierre Monnin, Alejandro Hajdenberg, Vlad Popovici, Flaviu Mihaescu, and Mihai Copaciu for their comments and suggestions on earlier drafts of this work.
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Disclaimer
The views expressed in this book are those of the author and do not necessarily represent the views of the IMF, its Executive Board or IMF management.
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Contents
1 The Imperative of Adjusting the Phillips Curve 1 1.1 The Original Phillips Curve and Its Revisions 3 1.2 The Flattening of the Phillips Curve 11 1.3 Addressing Measurement Errors 19 References 26 2 An Alternative Theoretical Framework for Consumption and Saving 33 2.1 Defensive Expectations 33 2.2 The Cumulative Wage Gap 39 2.3 Compensatory Savings 48 2.4 Reframing Consumption as a Function of the Cumulative Wage Gap 52 References 70 3 Inconvenient Truths 73 3.1 Downward Wage Flexibility 73 3.2 Lower Wages, Higher Savings 86 Refer
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