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Wage Growth and the Inflation Process: An Empirical Approach

In: Cointegration

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  • Yash P. Mehra

Abstract

A popular theoretical model of the inflation process is the expectations augmented Phillips curve model. In this model, it is generally assumed that prices are set as a markup over productivity-adjusted labour costs, the latter being determined by the expected inflation rate and the degree of demand pressure.1 It is assumed further that expected inflation depends on past inflation. This model thus implies that wages and prices are causally related with feedbacks in both directions. However, Gordon (1988) has raised some doubts on the validity of this implication. He found that changes in wages and prices are not related in the Granger-causal sense. His finding also contradicts the results in some early empirical works of Barth and Bennett (1975) in which it was shown that wages and prices are related with Granger-causality running either in both directions or only from prices to wages.

Suggested Citation

  • Yash P. Mehra, 1994. "Wage Growth and the Inflation Process: An Empirical Approach," Palgrave Macmillan Books, in: B. Bhaskara Rao (ed.), Cointegration, chapter 5, pages 147-159, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-23529-2_5
    DOI: 10.1007/978-1-349-23529-2_5
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    Cited by:

    1. Osman Suliman, 2003. "Endogenous Restrictions for Least Developed Economies," Review of International Economics, Wiley Blackwell, vol. 11(2), pages 423-434, May.
    2. Frederico Gonzaga Jayme Jr., 2003. "Balance-of-payments-constrained economic growth in Brazil," Brazilian Journal of Political Economy, Center of Political Economy, vol. 23(1), pages 63-86.
    3. Olabanji Olukayode Ewetan & Henry Okodua, 2013. "Is There A Link Between Financial Sector Development And Economic Growth In Nigeria?," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 1(4), pages 108-118.
    4. Frederico Gonzaga Jayme Junior, 2001. "External debt sustainability: empirical evidence in Brazil," Textos para Discussão Cedeplar-UFMG td154, Cedeplar, Universidade Federal de Minas Gerais.

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