Advanced Search
MyIDEAS: Login to save this article or follow this journal

Causal relationship between prices and wages: VECM analysis for Germany

Contents:

Author Info

  • Hoxha Adriatik

    ()
    (Department of Economics, Faculty of Economy, University of Prishtina)

Registered author(s):

    Abstract

    The literature on causality as well as the empirical evidence clearly shows that there are two opposing groups of economists, who support different hypotheses with respect to the flow of causality in the price-wage causal relationship. The first group argues that causality runs from wages to prices, whereas the second argues that effect flows from prices to wages. Nonetheless, there is at least some consensus that researcher’s conclusions may be contingent on the type of data employed, applied econometric model, or even that the relationship may vary through economic cycles. This paper empirically examines the price-wage causal relationship in Germany, by using OLS and VECM analysis, and it also provides robust evidence in support of a long-run unilateral causal relationship between prices and wages, running from wages to prices. In contrast, the evidence suggests that there is no statistically significant short-run relationship between prices and wages. Prior to designing and estimating the econometric model we have performed stationarity tests for the employed price, wage and productivity variables. Additionally, we have also specified the model taking into account the lag order as well as the rank of co-integration for the co-integrated variables. Furthermore, we have also applied respective restrictions on the parameters of the estimated VECM. The evidence resulting from model robustness checks indicates that results are statistically robust. Although far from closing the issue of causality between prices and wages, this paper at least provides solid evidence for the case of Germany.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://journals.univ-danubius.ro/index.php/euroeconomica/article/view/719/656
    Download Restriction: no

    Bibliographic Info

    Article provided by Danubius University of Galati in its journal Euroeconomica.

    Volume (Year): (2010)
    Issue (Month): 26 (November)
    Pages: 90-106

    as in new window
    Handle: RePEc:dug:journl:y:2010:i:26:p:90-106

    Contact details of provider:
    Web page: http://www.euroeconomica-danubius.ro/
    More information through EDIRC

    Related research

    Keywords: Causality; Co-integration; Granger; Determinants of Inflation; VECM;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:dug:journl:y:2010:i:26:p:90-106. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Florian Nuta).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.