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The emergence of wage-price spirals: Implications for Monetary Policy Response

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  • Mushtariy Boymatova

    (Central Bank of Uzbekistan)

Abstract

This paper examines the interaction between nominal wage dynamics and consumer price inflation in Uzbekistan, with the aim of assessing the risk of wage-price spirals in an emerging market context. Using quarterly data covering the period from 2007 to 2025, the analysis investigates whether wage and price developments reflect self-reinforcing feedback mechanisms or primarily capture compensatory adjustments driven by external and institutional factors. The empirical framework combines cointegration analysis, conditional Granger causality tests, and a vector error correction model (VECM), complemented by impulse response functions to characterise the dynamic transmission of wage and price shocks. The results establish the presence of a stable long-run equilibrium between wages and prices, with adjustment operating exclusively through wages rather than prices. Granger causality tests reveal a clear unidirectional pattern: consumer prices drive nominal wages, while wages do not feed back into prices in either the short or long run. Impulse response analysis confirms that wage shocks generate only a moderate and gradual price response, whereas price shocks produce a persistent wage adjustment consistent with compensatory indexation. These findings do not support the existence of a self-sustaining wage-price spiral in Uzbekistan. Instead, wage dynamics appear to reflect institutionally driven responses to inflation, shaped by centralized public-sector wage setting, while exchange rate pass-through emerges as the dominant driver of price dynamics.

Suggested Citation

  • Mushtariy Boymatova, 2026. "The emergence of wage-price spirals: Implications for Monetary Policy Response," IHEID Working Papers 13-2026, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp13-2026
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    References listed on IDEAS

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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