Inflation Expectations and the Structural Shift in Aggregate Labor-Cost Determination in the 1980s
AbstractAggregate labor cost equations tended to overpredict labor-cost inflation in the United States in the 1980s. We consider the hypothesis that a change in the price-inflation-expectations mechanism can explain this apparent structural shift in the 1980s. We examine whether the sharp recession of the early 1980s and continued tight monetary policy throughout the decade may have led to changes in the relationship between past price inflation and expected price inflation such that distributed lags of price inflation persistently overestimated expected price inflation, and hence led to overprediction of labor-cost inflation by standard Phillips curves in this period. The evidence leads us to reject this hypothesis, and to conclude instead that there was a true structural shift in labor cost determination. Copyright 1993 by Ohio State University Press.
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Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 25 (1993)
Issue (Month): 4 (November)
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Other versions of this item:
- David Neumark & Jonathan S. Leonard, 1992. "Inflation Expectations and the Structural Shift in Aggregate Labor-Cost Determination in the 1980s," NBER Working Papers 4018, National Bureau of Economic Research, Inc.
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