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Do wages help predict inflation?

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Author Info
Kenneth M. Emery
Chih-Ping Chang
Abstract

In the financial press, productivity-related wages are often cited as an inflation indicator. For example, recently slow rates of wage growth have been noted as a factor that will keep inflation rates low in the future. While inflation and wage growth do appear to be highly correlated over longer time periods, it is not clear whether movements in wage growth precede movements in inflation, thereby providing predictive content for future inflation. In this article, Kenneth Emery and Chih-Ping Chang examine the usefulness of wage growth as a predictor of inflation, as well as carry out a stability analysis of the relationship underlying inflation and wages. The results caution against using wage growth as a signal of future inflation in that wage growth has no information content for future inflation. Furthermore, the bivariate relationship between inflation and wage growth is shown to be unstable.

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File URL: http://www.dallasfed.org/research/er/1996/er9601a.pdf
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Article provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.

Volume (Year): (1996)
Issue (Month): Q I ()
Pages: 2-9
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Handle: RePEc:fip:fedder:y:1996:i:qi:p:2-9

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Keywords: Inflation (Finance) ; Wages;

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. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May. [Downloadable!] (restricted)
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  2. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  3. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July. [Downloadable!] (restricted)
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  4. Chong, Yock Y & Hendry, David F, 1986. "Econometric Evaluation of Linear Macro-Economic Models," Review of Economic Studies, Blackwell Publishing, vol. 53(4), pages 671-90, August. [Downloadable!] (restricted)
  5. Yash P. Mehra, 1993. "Unit labor costs and the price level," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 35-52. [Downloadable!]
  6. Marianne Baxter & Robert G. King, 1995. "Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series," NBER Working Papers 5022, National Bureau of Economic Research, Inc. [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. Yash Mehra, 2000. "Wage-price dynamics : are they consistent with cost push?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 27-43. [Downloadable!]
  2. Attilio Zanetti, 2007. "Do Wages Lead Inflation? Swiss Evidence," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(I), pages 67-92, March. [Downloadable!]
  3. Robert W. Rich & Donald Rissmiller, 2000. "Understanding the recent behavior of U.S. inflation," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Jul. [Downloadable!]
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