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On the Relationships between Wages, Prices, and Economic Activity

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  • Edward S. Knotek
  • Saeed Zaman

Abstract

We take a closer look at the connections between wages, prices, and economic activity. We find that causal relationships between wages and prices are difficult to identify, and the ability of wages to help predict future inflation is limited. Wages appear to be useful in assessing the current state of labor markets, but they are not necessarily sufficient for thinking about where the economy and inflation are going.

Suggested Citation

  • Edward S. Knotek & Saeed Zaman, 2014. "On the Relationships between Wages, Prices, and Economic Activity," Economic Commentary, Federal Reserve Bank of Cleveland, issue Aug.
  • Handle: RePEc:fip:fedcec:00019
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    References listed on IDEAS

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    Cited by:

    1. Elena Bobeica & Matteo Ciccarelli & Isabel Vansteenkiste, 2019. "The link between labor cost and price inflation in the euro area," Working Papers Central Bank of Chile 848, Central Bank of Chile.
    2. , 2019. "Predicting Benchmarked US State Employment Data in Realtime," Working Paper Series WP 2019-11, Federal Reserve Bank of Chicago.
    3. Adriatik Hoxha, 2016. "The Wage-Price Setting Behavior: Comparing The Evidence from EU28 and EMU," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 19(60), pages 61-102, June.
    4. Sengul, Gonul & Tasci, Murat, 2020. "Unemployment flows, participation, and the natural rate of unemployment: Evidence from turkey," Journal of Macroeconomics, Elsevier, vol. 64(C).
    5. Clara De Luigi & Florian Huber & Josef Schreiner, 2019. "The impact of labor cost growth on inflation in selected CESEE countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/19, pages 56-78.
    6. Hahn, Elke, 2020. "The wage-price pass-through in the euro area: does the growth regime matter?," Working Paper Series 2485, European Central Bank.
    7. Donayre, Luiggi & Panovska, Irina, 2018. "U.S. wage growth and nonlinearities: The roles of inflation and unemployment," Economic Modelling, Elsevier, vol. 68(C), pages 273-292.
    8. Vizhdan Boranova & Raju Huidrom & Sylwia Nowak & Petia Topalova & Volodymyr Tulin & Richard Varghese, 2019. "Wage Growth and Inflation in Europe: A Puzzle?," IMF Working Papers 19/280, International Monetary Fund.
    9. Elena Bobeica & Matteo Ciccarelli & Isabel Vansteenkiste, 2020. "The Link between Labor Cost Inflation and Price Inflation in the Euro Area," Central Banking, Analysis, and Economic Policies Book Series, in: Gonzalo Castex & Jordi Galí & Diego Saravia (ed.),Changing Inflation Dynamics,Evolving Monetary Policy, edition 1, volume 27, chapter 4, pages 071-148, Central Bank of Chile.
    10. Antonio M. Conti & Andrea Nobili, 2019. "Wages and prices in the euro area: exploring the nexus," Questioni di Economia e Finanza (Occasional Papers) 518, Bank of Italy, Economic Research and International Relations Area.
    11. Adriatik Hoxha, 2016. "The Switch to Near-Rational Wage-Price Setting Behaviour: The Case of United Kingdom," EuroEconomica, Danubius University of Galati, issue 1(35), pages 127-148, may.

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