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A Small Linear Model of Wage- and Price-Inflation in the Norwegian Economy

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  • Nymoen, R

Abstract

This paper presents a model of inflation in a small open economy which features both wage-wage linkages and wage-price spiral. Hence the authors have a simultaneous structure which contains the conventional Scandinavian model of inflation as a special case. Full system estimation results are reported. Great emphasis is placed on data coherency and on parameter stability. One interesting finding is that both wage growth and the wage level in the exposed (E)-sector are strongly influenced by the outside wage. This contradicts the predictions of the Scandinavian model, which defines the wage-leading role of the E-sector by the absence of outside wage effects in E-sector wage formation. Another result is that the speed of adjustment to exogenous shocks is greater for prices than for wages. This finding may be important in explaining real wage flexibility, which is often seen as the hallmark of low unemployment economies such as the Norwegian. Copyright 1991 by John Wiley & Sons, Ltd.

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  • Nymoen, R, 1991. "A Small Linear Model of Wage- and Price-Inflation in the Norwegian Economy," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(3), pages 255-269, July-Sept.
  • Handle: RePEc:jae:japmet:v:6:y:1991:i:3:p:255-69
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    Cited by:

    1. Kåre Johansen & Ørjan Mydland & Bjarne Strøm, 2007. "Politics in wage setting: does government colour matter?," Economics of Governance, Springer, vol. 8(2), pages 95-109, February.
    2. Bårdsen, Gunnar & Nymoen, Ragnar, 2006. "U.S. natural rate dynamics reconsidered," Memorandum 13/2006, Oslo University, Department of Economics.
    3. Q. Farooq Akram & Ragnar Nymoen, 2009. "Model Selection for Monetary Policy Analysis: How Important is Empirical Validity?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 35-68, February.
    4. Shigeyuki Hamori & Takeshi Hoshikawa & Junya Masuda & Kunihiro Hanabusa, 2009. "Price and Wage Setting in Japan: An Empirical Investigation," Economics Bulletin, AccessEcon, vol. 29(1), pages 38-50.
    5. Gjelsvik, Marit Linnea & Nymoen, Ragnar & Sparrman, Victoria, 2015. "Have Inflation Targeting and EU labour Immigration Changed the System of Wage Formation in Norway," Memorandum 18/2015, Oslo University, Department of Economics.
    6. Roger Bjørnstad & Ragnar Nymoen, 2006. "Will it float? The New Keynesian Phillips curve tested on OECD panel data," Discussion Papers 463, Statistics Norway, Research Department.
    7. de la Croix, David, 1994. " Wage Interdependence through Decentralized Bargaining," Journal of Economic Surveys, Wiley Blackwell, vol. 8(4), pages 371-403, December.

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