Causal relationship between wages and prices in R. Macedonia: VECM analysis
AbstractIn this paper the issue of causality between wages and prices in R. Macedonia has been tested. OLS relationship between prices and wages is positive; productivity is not significant in determination of prices or wages too. Engle-Granger test proved that variables of interest CPI and average real wage are cointegrated, i.e. there exists long run relationship between those variables, when first differenced. While their levels are not cointegrated. ARDL regression proved that between CPI and average real wage there exists almost significant long run relationship (tstat=1.60), and coefficient is of size 0.3353 at one lag. Unit root test showed that CPI and average real wage are I (1) variables. Johansen’s test of cointegration showed that we cannot reject the null hypothesis of having rank 1 (rank=1) and therefore the number of cointegrating vectors is one. Optimal number of lags according for VARs and VECMs is 1. From the VECM model we can see which variable responds more if there is shock in the system, and it seems that average real wage responds more on the shock in the system. --
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Bibliographic InfoPaper provided by ZBW - German National Library of Economics in its series EconStor Preprints with number 77910.
Date of creation: 2013
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Granger causality; wages; prices; VECM;
Other versions of this item:
- Josheski, Dushko & Bardarova, Snezana, 2013. "Causal relationship between wages and prices in R. Macedonia: VECM analysis," MPRA Paper 48179, University Library of Munich, Germany.
- C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-28 (All new papers)
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