Wage Growth and the Inflation Process: A Multivariate Cointegration Analysis
Past empirical analysis of the relationship between wages and prices within the expectations-augmented Phillips curve model have raised doubts about the effects of labor costs on inflation. Analysis of the same data used previously reveals the existence of a deterministic linear time component in the wage and price series which past research failed to take into account. Using the Johansen (1988, 1992, 1994) multivariate cointegration technique, the paper provides robust evidence on the consistency of the markup view of the inflation process with the data and concludes that monetary policy should profit from labor costs data in predicting future rates of inflation.
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Volume (Year): 31 (1999)
Issue (Month): 3 (August)
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