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Disequilibrium Macroeconomic Dynamics, Income Distribution and Wage-Price Phillips Curves

  • Ekkehard Ernst

    ()

    (OECD)

  • Peter Flaschel

    ()

    (University of Bielefeld)

  • Christian Proano

    ()

    (University of Bielefeld, IMK at the Hans Boeckler Foundation)

  • Willi Semmler

    ()

    (New School for Social Research, New York)

The authors of this paper formulate a disequilibrium AS-AD model based on sticky wages and prices, perfect foresight of current inflation rates and adaptive expectations concerning the inflation climate in which the economy operates. The model consists of a wage and a price Phillips curves, a dynamic IS curve as well as a dynamic employment adjustment equation and a Taylor-rule-type interest rate law of motion. Through instrumental variables GMM system estimation with aggregate time series data for the U.S. and the euro area economies, the authors obtain structural parameter estimates which support the specification of their theoretical model and show the importance of the inflationary climate, as well as of the Blanchard-Katz error correction terms, and indirectly of income distribution, in the dynamics of wage and price inflation in the U.S. and the euro area economies.

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Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 04-2006.

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Length: 29 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:imk:wpaper:04-2006
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  20. Krolzig, Hans-Martin & Peter Flaschel, 2003. "Wage and Price Phillips Curves," Royal Economic Society Annual Conference 2003 128, Royal Economic Society.
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