Kiel Working Papers, Kiel Institute for World Economics
No 1333:
Does Immigration Affect the Phillips Curve? Some Evidence for Spain
Samuel Bentolila, Juan J. Dolado and Juan F. Jimeno
Abstract: This paper examines the evolution of the Phillips Curve
(PC) for the Spanish economy since 1980. In particular, we focus on what
has happened since the late 1990s. Since 1999 the unemployment rate has
fallen by almost 7 percentage points, while inflation has remained
relatively subdued around a plateau of 2%- 4%. Thus, the slope of the PC
has become much flatter. We argue that this favorable evolution is largely
due to the huge rise in the immigration rate, from 1% of the population in
1994 to 9.3% in 2006. We derive a New Keynesian Phillips curve accounting
for the e¤ects of immigration, a variable which is found to shift the curve
if preferences and bargaining power of immigrants and natives di¤er. We
then estimate this curve for Spain since 1980 and find that while the fall
in unemployment over the last 8 years comes along with an increase in
inflation of 2.2 percentage points per year, the increase of the relative
unemployment rate of immigrants vis-ą-vis natives accounts for an ofsetting
0.9 percentage points drop in the inflation rate per year.
Keywords: Phillips curve, immigration; (follow links to similar papers)
JEL-Codes: E31,; J64; (follow links to similar papers)
32 pages, June 2007
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