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The relative adjustment of wages and prices: direct tests within a multiple-equation system

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  • Martin Schmidt

Abstract

In order to assess the relative rigidity of the aggregate price level and the nominal wage rate most researchers have focused on the implied behaviour of the real wage rate in response to a purely demand disturbance. The present work examines the explicit behaviour of the two variables and is therefore able to analyse the variables' short-run responses within the context of their defined long-run behaviour. While the paper reports evidence of long-run stability in the real wage rate, additional evidence is presented which supports both sticky-price and sticky-wage models. The determining factor is the choice of lag.

Suggested Citation

  • 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.
    • Handle: RePEc:taf:applec:v:35:y:2003:i:8:p:985-997
    DOI: 10.1080/0003684032000056779
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