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Disequilibrium Macroeconomic Dynamics, Income Distribution and Wage-Price Phillips Curves

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Author Info

  • Ekkehard Ernst

    () (OECD)

  • Peter Flaschel

    () (University of Bielefeld)

  • Christian Proano

    () (University of Bielefeld, IMK at the Hans Boeckler Foundation)

  • Willi Semmler

    () (New School for Social Research, New York)

Abstract

The authors of this paper formulate a disequilibrium AS-AD model based on sticky wages and prices, perfect foresight of current inflation rates and adaptive expectations concerning the inflation climate in which the economy operates. The model consists of a wage and a price Phillips curves, a dynamic IS curve as well as a dynamic employment adjustment equation and a Taylor-rule-type interest rate law of motion. Through instrumental variables GMM system estimation with aggregate time series data for the U.S. and the euro area economies, the authors obtain structural parameter estimates which support the specification of their theoretical model and show the importance of the inflationary climate, as well as of the Blanchard-Katz error correction terms, and indirectly of income distribution, in the dynamics of wage and price inflation in the U.S. and the euro area economies.

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Bibliographic Info

Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 04-2006.

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Length: 29 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:imk:wpaper:04-2006

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Keywords: AS-AD disequilibrium; wage and price Phillips curves; real wage adjustment;

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References

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Citations

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Cited by:
  1. Franke, Reiner & Flaschel, Peter & Proano, Christian R., 2006. "Wage-price dynamics and income distribution in a semi-structural Keynes-Goodwin model," Structural Change and Economic Dynamics, Elsevier, vol. 17(4), pages 452-465, December.
  2. Christian Proaño Acosta, 2007. "Inflation Differentials and Business Cycle Fluctuations in the European Monetary Union," IMK Working Paper 05-2007, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  3. Christian Proaño, 2009. "(De-)Stabilizing two-country macroeconomic interactions in an estimated model of the U.S. and the Euro Area," International Economics and Economic Policy, Springer, vol. 6(4), pages 421-443, December.
  4. Proaño, Christian R., 2011. "Exchange rate determination, macroeconomic dynamics and stability under heterogeneous behavioral FX expectations," Journal of Economic Behavior & Organization, Elsevier, vol. 77(2), pages 177-188, February.

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