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Economic theory and econometric dynamics in modelling wages and prices in the United Kingdom


  • Paul G. Fisher

    (Bank of England)

  • Gunnar BÅrdsen

    () (Department of Economics, Norwegian University of Science and Technology Dragvoll, N-7491 Trondheim, Norway)


We show that a "competing claims" model of imperfect competition can explain the movements of wages and prices in the United Kingdom, using quarterly data covering 1976-93. We argue that careful attention both to economic theory and to the interaction between dynamics and identification is crucial in the building of the model and to dynamic econometric models in general. We use a small numerical example with simulated cointegrated data to illustrate the potential pitfalls.

Suggested Citation

  • Paul G. Fisher & Gunnar BÅrdsen, 1999. "Economic theory and econometric dynamics in modelling wages and prices in the United Kingdom," Empirical Economics, Springer, vol. 24(3), pages 483-507.
  • Handle: RePEc:spr:empeco:v:24:y:1999:i:3:p:483-507 Note: received: January 1998/final version received: November 1998

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    References listed on IDEAS

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    Cited by:

    1. Jansen, Eilev S., 2004. "Modelling inflation in the euro area," Working Paper Series 322, European Central Bank.
    2. Rita Duarte & Carlos Marques, 2013. "The dynamic effects of shocks to wages and prices in the United States and the Euro Area," Empirical Economics, Springer, vol. 44(2), pages 613-638, April.
    3. Akram,Q.F. & Nymoen,R., 2001. "Employment behaviour in slack and tight labour markets," Memorandum 27/2001, Oslo University, Department of Economics.
    4. Gunnar Bårdsen & Eilev S. Jansen & Ragnar Nymoen, 2002. "The Empirical (ir)Relevance of the New Keynesian Phillips Curve," Working Paper Series 2102, Department of Economics, Norwegian University of Science and Technology.
    5. Gil-Alana, L.A., 2005. "A re-examination of historical real daily wages in England: 1260-1994," Journal of Policy Modeling, Elsevier, vol. 27(7), pages 829-838, October.
    6. Akram, Q. Farooq & Nymoen, Ragnar, 2006. "Econometric modelling of slack and tight labour markets," Economic Modelling, Elsevier, vol. 23(4), pages 579-596, July.
    7. Gunnar Bårdsen & Stan Hurn & Zoë Mchugh, 2007. "Modelling Wages and Prices in Australia," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 143-158, June.
    8. Janine Aron & John Muellbauer & B. Smit, 2004. "A Structural Model of the Inflation Process in South Africa," CSAE Working Paper Series 2004-08, Centre for the Study of African Economies, University of Oxford.
    9. Bjørnar Karlsen Kivedal, 2013. "A New Keynesian Framework and Wage and Price Dynamics in the US," Working Paper Series 15113, Department of Economics, Norwegian University of Science and Technology.
    10. Gunnar Bårdsen & Ragnar Nymoen, 2003. "Testing Steady-State Implications for the NAIRU," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1070-1075, November.
    11. Guglielmo Caporale & Luis Gil-Alana, 2006. "Long memory at the long run and at the cyclical frequencies: modelling real wages in England, 1260–1994," Empirical Economics, Springer, vol. 31(1), pages 83-93, March.
    12. Gunnar Bardsen & Eilev S. Jansen & Ragnar Nymoen, 2003. "Econometric inflation targeting," Econometrics Journal, Royal Economic Society, vol. 6(2), pages 430-461, December.

    More about this item


    Dynamic econometric models · steady state · cointegration · equilibrium correction · wages · prices;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General


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