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Analysing wage and price dynamics in New Zealand

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This paper examines the relationship between wages and consumer prices in New Zealand over the last 15 years. Reflecting the open nature of the New Zealand economy, the headline CPI is disaggregated into non-tradable and tradable prices. We find that there is a joint causality between wages and disaggregate inflation. An increase in wage inflation forecasts an increase in non-tradable inflation. However, it is tradable inflation that drives wage inflation. While exogenous shocks to wages do not help to forecast inflation, the leading relationship from wages to non-tradable inflation implies that monitoring wages may prove useful for projecting the impact of other shocks on future inflation.

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File URL: http://rbnz.govt.nz/research_and_publications/discussion_papers/2009/dp09_06.pdf
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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2009/06.

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Length: 17p
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:nzb:nzbdps:2009/06

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  1. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-18, Nov.-Dec..
  2. Matheson, Troy D., 2008. "Phillips curve forecasting in a small open economy," Economics Letters, Elsevier, vol. 98(2), pages 161-166, February.
  3. Andrew Coleman & Brian Silverstone, 2007. "Price changes by firms in New Zealand - some evidence from the Quarterly Survey of Business Opinion," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 70, September.
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