Modelling Wages and Prices in Australia
Empirical models of Australian wages and prices are either single equation, equilibrium correction models or structural VAR models. Both theory and empirical evidence from other countries, however, suggests that wages and prices are jointly determined. Consequently, this paper estimates a simultaneous equation model of wages and prices for Australia, underpinned by a competing claims framework of imperfect competition. Two separate cointegrating relationships for wages and prices are identfied by imposing the economic hypotheses implied by the theory. The steady-state relationships for wages and prices are then embedded in a parsimonious, dynamic wage-price model.
|Date of creation:||22 Nov 2001|
|Date of revision:||30 Sep 2005|
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