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How Fast Wages Adjust to Prices: A Multi Country Analysis

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  • Mohsen Bahmani-oskooee

    ()
    (University of Wisconsin-Milwaukee)

  • Massoumeh Hajilee

    ()
    (University of Houston-Victoria)

Abstract

The adjustment of nominal wages to inflation has implications on the labor market as well as on other areas in economics. In this paper, we employ the Blanchard and Katz (1997, 1999) model of nominal wage determination and try to estimate the adjustment speed. By using the bounds testing approach for cointegration and error-correction modeling we distinguish the short run from the long run. The model is estimated for 29 countries using annual data over the period 1975-2006. We find that inflation, unemployment rate, and labor productivity all have short-run and long-run effects for the majority of the countries. However, nominal wages adjust to inflation fully in 11 of the 29 counties.

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File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I3-P215.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 3 ()
Pages: 2404-2413

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Handle: RePEc:ebl:ecbull:eb-11-00013

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Related research

Keywords: Wage- Price Philips curve; adjustment speed; Bounds Testing.;

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References

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  1. Jordi Galí, 2011. "The Return Of The Wage Phillips Curve," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 436-461, 06.
  2. PLASMANS, Joseph & MEERSMAN, Hilde & VAN POECK, André & MERLEVEDE, Bruno, 2002. "The unemployment benefit system and wage flexibility in EMU: time-varying evidence in five countries," Working Papers 2002020, University of Antwerp, Faculty of Applied Economics.
  3. Mohsen Bahmani-Oskooee & Claire Economidou & Gour Gobinda Goswami, 2005. "How sensitive are Britain's inpayments and outpayments to the value of the British pound," Journal of Economic Studies, Emerald Group Publishing, vol. 32(5), pages 455-467, October.
  4. Koi Nyen Wong & Tuck Cheong Tang, 2008. "The effects of exchange rate variability on Malaysia's disaggregated electrical exports," Journal of Economic Studies, Emerald Group Publishing, vol. 35(2), pages 154-169, May.
  5. David G. Blanchflower & Andrew J. Oswald, 1994. "Estimating a Wage Curve for Britain 1973-1990," NBER Working Papers 4770, National Bureau of Economic Research, Inc.
  6. Jordi Gali & Mark Gertler & J. David Lopez-Salido, 2001. "European Inflation Dynamics," NBER Working Papers 8218, National Bureau of Economic Research, Inc.
  7. Ferda Halicioglu, 2007. "The J-curve dynamics of Turkish bilateral trade: a cointegration approach," Journal of Economic Studies, Emerald Group Publishing, vol. 34(2), pages 103-119, May.
  8. Blanchflower, David G & Oswald, Andrew J, 1994. "Estimating a Wage Curve for Britain: 1973-90," Economic Journal, Royal Economic Society, vol. 104(426), pages 1025-43, September.
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