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Do Wages Lead Inflation? Swiss Evidence

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Author Info
Attilio Zanetti
Abstract

We construct a quarterly time series for nominal hourly wages and unit labour costs from 1975 onwards and investigate the empirical link between wages and CPI inflation in order to identify causality effects and assess the relevance of wages as an indicator for short-run price changes. We find evidence that prices systematically influence wages whereas the influence of wages on prices is much more sensitive to the choice of the sample period. In particular, the explanatory power of wages disappears in a low inflation environment. These findings move in the same direction as most evidence obtained with US data.

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Publisher Info
Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 143 (2007)
Issue (Month): I (March)
Pages: 67-92
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Handle: RePEc:ses:arsjes:2007-i-4

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Related research
Keywords: inflation; wages; unit labor costs; Granger causality;

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Find related papers by JEL classification:
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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  1. Chow, Gregory C & Lin, An-loh, 1971. "Best Linear Unbiased Interpolation, Distribution, and Extrapolation of Time Series by Related Series," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 372-75, November. [Downloadable!] (restricted)
  2. Gordon, Robert J, 1988. "The Role of Wages in the Inflation Process," American Economic Review, American Economic Association, vol. 78(2), pages 276-83, May. [Downloadable!] (restricted)
  3. Kenneth M. Emery & Chih-Ping Chang, 1996. "Do wages help predict inflation?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q I, pages 2-9. [Downloadable!]
  4. Ghali, Khalifa H, 1999. "Wage Growth and the Inflation Process: A Multivariate Cointegration Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 417-31, August.
  5. David A. Brauer, 1997. "Do rising labor costs trigger higher inflation?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Sep. [Downloadable!]
  6. Yash P. Mehra, 1993. "Unit labor costs and the price level," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 35-52. [Downloadable!]
  7. Layard, Richard & Nickell, Stephen, 1986. "Unemployment in Britain," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S121-69, Supplemen. [Downloadable!] (restricted)
  8. Olivier Jean Blanchard & Lawrence Katz, 1999. "Wage Dynamics: Reconciling Theory and Evidence," NBER Working Papers 6924, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Mehra, Yash P, 1991. "Wage Growth and the Inflation Process: An Empirical Note," American Economic Review, American Economic Association, vol. 81(4), pages 931-37, September. [Downloadable!] (restricted)
  10. Flint Brayton & John M. Roberts & John C. Williams, 1999. "What's happened to the Phillips curve?," Finance and Economics Discussion Series 1999-49, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  11. Oxley, Les & McAleer, Michael, 1993. " Econometric Issues in Macroeconomic Models with Generated Regressors," Journal of Economic Surveys, Blackwell Publishing, vol. 7(1), pages 1-40.
  12. Stephen Tokarick & Jorge A. Chan-Lau, 1999. "Why Has Inflation in the United States Remained So Low? Reassessing the Importance of Labor Costs and the Price of Imports," IMF Working Papers 99/149, International Monetary Fund.
  13. Gregory D. Hess & Mark E. Schweitzer, 2000. "Does wage inflation cause price inflation?," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Apr, pages 1-14. [Downloadable!]
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