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Measuring the Interaction of Wage and Price Phillips Curves for the U.S. Economy

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Author Info
Pu Chen (Bieleleld University)
Peter Flaschel (Bielefeld University)

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Abstract

This paper demonstrates that demand pressure, besides hybrid cost-pressure, matters both on the labor market and on the market for goods in the determination of wage and price inflation. We discuss theoretically and estimate for the USA wage and price Phillips curves exhibiting their own demand pressure measure in their respective market and weighted averages of perfectly foreseen short- and adaptively changed medium-run cost-pressure terms in addition. These curves are in their formal structure closely related to NK staggered wage and price dynamics, but differ radically from them in their implications. Our findings are that wages are more flexible than prices with respect to their demand pressure measure and that price determination gives much more weight to medium term inflation than does wage inflation. Supplemented by Okun's law, this implies a reduced form real wage dynamic that depends positively on economic activity, and thus an adverse type of real wage adjustment, if goods demand depends positively on real wages.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Studies in Nonlinear Dynamics & Econometrics.

Volume (Year): 10 (2006)
Issue (Month): 4 ()
Pages: 1255-1255
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Handle: RePEc:bep:sndecm:10:2006:4:1255-1255

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Related research
Keywords: wage and price Phillips curves Okun's law normal or adverse real-wage adjustment Blanchard/Katz error correction

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Mankiw, N Gregory, 2001. "The Inexorable and Mysterious Tradeoff between Inflation and Unemployment," Economic Journal, Royal Economic Society, vol. 111(471), pages C45-61, May. [Downloadable!] (restricted)
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  2. Chiarella, Carl & Flaschel, Peter, 1996. "Real and monetary cycles in models of Keynes-Wicksell type," Journal of Economic Behavior & Organization, Elsevier, vol. 30(3), pages 327-351, September. [Downloadable!] (restricted)
  3. Spanos, Aris, 1990. "The simultaneous-equations model revisited : Statistical adequacy and identification," Journal of Econometrics, Elsevier, vol. 44(1-2), pages 87-105. [Downloadable!] (restricted)
  4. Cheng Hsiao, 1997. "Cointegration and Dynamic Simultaneous Equations Model," Econometrica, Econometric Society, vol. 65(3), pages 647-670, May.
  5. Ray C. Fair, 2000. "Testing the NAIRU Model for the United States," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 64-71, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Toichiro Asada & Carl Chiarella & Peter Flaschel & Christian R. Proaño, 2007. "Keynesian AD-AS, Quo Vadis?," Working Paper Series 151, School of Finance and Economics, University of Technology, Sydney. [Downloadable!]
  2. Ekkehard Ernst & Peter Flaschel & Christian Proano & Willi Semmler, 2006. "Disequilibrium Macroeconomic Dynamics, Income Distribution and Wage-Price Phillips Curves," IMK Working Paper 04-2006, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute. [Downloadable!]
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This page was last updated on 2008-8-3.

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