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The Passthrough of Labor Costs to Price Inflation

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  • EKATERINA V. PENEVA
  • JEREMY B. RUDD

Abstract

We use a time‐varying parameter/stochastic volatility VAR framework to assess how the passthrough of labor costs to price inflation has evolved over time in U.S. data. We find little evidence that independent movements in labor costs have had a material effect on price inflation in recent years, even for compensation measures where some degree of passthrough to prices still appears to be present. Our results cast doubt on explanations of recent inflation behavior that appeal to such mechanisms as downward nominal wage rigidity or a differential contribution of long‐term and short‐term unemployed workers to wage and price pressures.

Suggested Citation

  • Ekaterina V. Peneva & Jeremy B. Rudd, 2017. "The Passthrough of Labor Costs to Price Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(8), pages 1777-1802, December.
    • Handle: RePEc:wly:jmoncb:v:49:y:2017:i:8:p:1777-1802
    DOI: 10.1111/jmcb.12449
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    References listed on IDEAS

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