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Wage Growth and the Inflation Process: A Multivariate Cointegration Analysis

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  • Ghali, Khalifa H
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    Abstract

    Past empirical analysis of the relationship between wages and prices within the expectations-augmented Phillips curve model have raised doubts about the effects of labor costs on inflation. Analysis of the same data used previously reveals the existence of a deterministic linear time component in the wage and price series which past research failed to take into account. Using the Johansen (1988, 1992, 1994) multivariate cointegration technique, the paper provides robust evidence on the consistency of the markup view of the inflation process with the data and concludes that monetary policy should profit from labor costs data in predicting future rates of inflation.

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    Bibliographic Info

    Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

    Volume (Year): 31 (1999)
    Issue (Month): 3 (August)
    Pages: 417-31

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    Handle: RePEc:mcb:jmoncb:v:31:y:1999:i:3:p:417-31

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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    Cited by:
    1. Luojia Hu & Maude Toussaint-Comeau, 2010. "Do labor market activities help predict inflation?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 52-63.
    2. Zhiyong Fan, 2009. "Is China’s inflation pushed by wages? An empirical research based on excess wages," Frontiers of Economics in China, Springer, vol. 4(4), pages 572-587, December.
    3. Evan F. Koenig, 2001. "What goes down must come up: understanding time-variation in the NAIRU," Working Papers 0101, Federal Reserve Bank of Dallas.
    4. 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.
    5. Yash Mehra, 2000. "Wage-price dynamics : are they consistent with cost push?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 27-43.
    6. Jonsson, Magnus & Palmqvist, Stefan, 2004. "Do Higher Wages Cause Inflation?," Working Paper Series 159, Sveriges Riksbank (Central Bank of Sweden).
    7. Carsten A Holz & Aaron Mehrotra, 2013. "Wage and price dynamics in a large emerging economy: The case of China," BIS Working Papers 409, Bank for International Settlements.
    8. Kumar, Saten & Webber, Don J. & Perry, Geoff, 2009. "Real Wages, Inflation and Labour Productivity in Australia," MPRA Paper 19293, University Library of Munich, Germany.
    9. Gil-Alana, L.A., 2008. "Testing of seasonal integration and cointegration with fractionally integrated techniques: An application to the Danish labour demand," Economic Modelling, Elsevier, vol. 25(2), pages 326-339, March.
    10. Gregory D. Hess & Mark E. Schweitzer, 2000. "Does wage inflation cause price inflation?," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Apr.

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