IDEAS home Printed from
   My bibliography  Save this article

The Dynamic Behavior of Wages and Prices: Cointegration Tests within a Large Macroeconomic System


  • Martin B. Schmidt


The dynamic relationship between wages and prices has long held a central place within the economic literature. Most macroeconomic models make assumptions as to the causal relationship between the two variables. Unfortunately, empirical investigations have produced widely divergent results. In particular, the present paper examines the results of time-series studies and argues that the lack of a consensus is due to improperly specified models. Once the wage-price relationship is embedded within a multiple vector system, identification of a wage-price cointegrating relationship is significantly improved. In addition, the increased efficiency yields evidence in favor of the dual feedback between wages and prices.

Suggested Citation

  • Martin B. Schmidt, 2000. "The Dynamic Behavior of Wages and Prices: Cointegration Tests within a Large Macroeconomic System," Southern Economic Journal, Southern Economic Association, vol. 67(1), pages 123-138, July.
  • Handle: RePEc:sej:ancoec:v:67:1:y:2000:p:123-138

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    1. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    2. Ray, Subhash C & Desli, Evangelia, 1997. "Productivity Growth, Technical Progress, and Efficiency Change in Industrialized Countries: Comment," American Economic Review, American Economic Association, vol. 87(5), pages 1033-1039, December.
    3. Banker, Rajiv D., 1984. "Estimating most productive scale size using data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 17(1), pages 35-44, July.
    4. Lau, Lawrence J, 1972. "Profit Functions of Technologies with Multiple Inputs and Outputs," The Review of Economics and Statistics, MIT Press, vol. 54(3), pages 281-289, August.
    5. W. Briec, 1997. "A Graph-Type Extension of Farrell Technical Efficiency Measure," Journal of Productivity Analysis, Springer, vol. 8(1), pages 95-110, March.
    6. Robert Russell, R., 1985. "Measures of technical efficiency," Journal of Economic Theory, Elsevier, vol. 35(1), pages 109-126, February.
    7. Chambers, Robert G. & Chung, Y. & Fare, R., 1996. "Profit, Directional Distance Functions, and Nerlovian Efficiency," Working Papers 197837, University of Maryland, Department of Agricultural and Resource Economics.
    8. Fare, Rolf & Shawna Grosskopf & Mary Norris & Zhongyang Zhang, 1994. "Productivity Growth, Technical Progress, and Efficiency Change in Industrialized Countries," American Economic Review, American Economic Association, vol. 84(1), pages 66-83, March.
    9. Forsund, Finn R. & Lovell, C. A. Knox & Schmidt, Peter, 1980. "A survey of frontier production functions and of their relationship to efficiency measurement," Journal of Econometrics, Elsevier, vol. 13(1), pages 5-25, May.
    10. Luenberger, David G., 1992. "Benefit functions and duality," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 461-481.
    11. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "Multilateral Comparisons of Output, Input, and Productivity Using Superlative Index Numbers," Economic Journal, Royal Economic Society, vol. 92(365), pages 73-86, March.
    12. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "The Economic Theory of Index Numbers and the Measurement of Input, Output, and Productivity," Econometrica, Econometric Society, vol. 50(6), pages 1393-1414, November.
    13. Banker, Rajiv D & Maindiratta, Ajay, 1988. "Nonparametric Analysis of Technical and Allocative Efficiencies in Production," Econometrica, Econometric Society, vol. 56(6), pages 1315-1332, November.
    14. Seiford, Lawrence M. & Thrall, Robert M., 1990. "Recent developments in DEA : The mathematical programming approach to frontier analysis," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 7-38.
    15. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    16. Chambers, Robert G. & Chung, Yangho & Fare, Rolf, 1996. "Benefit and Distance Functions," Journal of Economic Theory, Elsevier, vol. 70(2), pages 407-419, August.
    17. Bauer, Paul W., 1990. "Recent developments in the econometric estimation of frontiers," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 39-56.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Saghaian, Sayed H. & Reed, Michael R., 2007. "Consumer Reaction to Beef Safety Scares," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IFAMA), vol. 10(01).
    2. Martin Schmidt, 2003. "The relative adjustment of wages and prices: direct tests within a multiple-equation system," Applied Economics, Taylor & Francis Journals, vol. 35(8), pages 985-997.
    3. Sayed H. Saghaian, 2007. "Beef safety shocks and dynamics of vertical price adjustment: The case of BSE discovery in the U.S. beef sector," Agribusiness, John Wiley & Sons, Ltd., vol. 23(3), pages 333-348.
    4. Logar, Ivana & van den Bergh, Jeroen C.J.M., 2013. "The impact of peak oil on tourism in Spain: An input–output analysis of price, demand and economy-wide effects," Energy, Elsevier, vol. 54(C), pages 155-166.
    5. Saghaian, Sayed H. & Özertan, Gökhan & Spaulding, Aslıhan D., 2008. "Dynamics of Price Transmission in the Presence of a Major Food Safety Shock: Impact of H5N1 Avian Influenza on the Turkish Poultry Sector," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 40(03), pages 1015-1031, December.
    6. Gökhan ÖZERTAN & Sayed H. SAGHAİAN & Hasan TEKGÜÇ, 2015. "Dynamics of Price Transmission and Market Power in the Turkish Beef Sector," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 30(349), pages 53-76.
    7. Martin B. Schmidt, 2004. "Exogeneity within the M2 Demand Function: Evidence from a Large Macroeconomic System," Economic Inquiry, Western Economic Association International, vol. 42(4), pages 634-646, October.
    8. Zhiyong Fan, 2009. "Is China’s inflation pushed by wages? An empirical research based on excess wages," Frontiers of Economics in China, Springer;Higher Education Press, vol. 4(4), pages 572-587, December.
    9. Evan F. Koenig, 2001. "What goes down must come up: understanding time-variation in the NAIRU," Working Papers 0101, Federal Reserve Bank of Dallas.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sej:ancoec:v:67:1:y:2000:p:123-138. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Laura Razzolini). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.