New keynesian wage Phillips curve: An application in Turkey

The traditional Phillips curve, which shows the existence of the inverse relationship between wage inflation and unemployment, was reinterpreted by the New Keynesian Economists during 1980's under the assumptions of wage and price stickiness and market failures. New Keynesian Wage Phillips Curve is one of the new Phillips curve models that prevents the economy from full employment. Literature review points that the inverse relationship between unemployment and the rate of change in money wages seems a significant issue to investigate which still stand as a gap in the existing literature. The main purpose of this thesis is to test the validity of the New Keynesian Phillips Curve Fee for Turkey during 1995Q1-2019Q4 by uisng autoregressive distributed lag (ARDL) Bounds test. Empirical findings indicated that, based on the assumptions of the New Keynesian approach, there is an adverse relationship exists among the wage inflation and unemploymen in Turkey. Besides, a linear relationship was found between wage inflation and inflation. The findings of this thesis revealed that NKWPC could be use by Turkish policy makers to design economic policies such as the estimation of future wages and prices and the determination of speed of adjustment rate to the equilibrium.