IDEAS home Printed from
   My bibliography  Save this article

Assessing the predictive power of labour-market indicators of inflation


  • Farrokh Nourzad


This article examines two different measures of wages as predicators of prices in a Vector Error-Correction (VEC) framework using quarterly data for the United States for the period from 1947Q1 to 2008Q1. Based on cointegration and a series of exogeneity tests, it is found that (i) there is a stable, long-run relationship between the Consumer Price Index (CPI) and the Personal Consumption Expenditures Deflator (PCED) on the one hand and Unit Labour Cost (ULC) and Average Hourly Earnings per Unit of Output (AHE) on the other; (ii) ULC is weakly exogenous for both price indices while the two price indices are weakly exogenous for AHE; (iii) ULC is strongly exogenous for CPI but not for AHE; and (iv) ULC is super exogenous for CPI. Taken together, these findings lead to the conclusion that ULC is a reliable indicator of price inflation but productivity-adjusted hourly earnings is not. Thus, monetary policymakers are justified in using information about the behaviour of ULC in formulating policy actions for achieving the goal of price stability.

Suggested Citation

  • Farrokh Nourzad, 2012. "Assessing the predictive power of labour-market indicators of inflation," Applied Economics Letters, Taylor & Francis Journals, vol. 19(10), pages 981-985, July.
  • Handle: RePEc:taf:apeclt:v:19:y:2012:i:10:p:981-985
    DOI: 10.1080/13504851.2011.610732

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    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:taf:apeclt:v:19:y:2012:i:10:p:981-985. 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: (Chris Longhurst). 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.