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Analysing wage and price dynamics in New Zealand

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Abstract

This paper examines the relationship between wages and consumer prices in New Zealand over the last 15 years. Reflecting the open nature of the New Zealand economy, the headline CPI is disaggregated into non-tradable and tradable prices. We find that there is a joint causality between wages and disaggregate inflation. An increase in wage inflation forecasts an increase in non-tradable inflation. However, it is tradable inflation that drives wage inflation. While exogenous shocks to wages do not help to forecast inflation, the leading relationship from wages to non-tradable inflation implies that monitoring wages may prove useful for projecting the impact of other shocks on future inflation.

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  • Ashley Dunstan & Troy Matheson & Hamish Pepper, 2009. "Analysing wage and price dynamics in New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2009/06, Reserve Bank of New Zealand.
    • Handle: RePEc:nzb:nzbdps:2009/06
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    File URL: http://rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Discussion%20papers/2009/dp09-06.pdf
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    References listed on IDEAS

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    1. Bewley, Truman F., 2007. "Insights gained from conversations with labor market decision makers," Working Paper Series 776, European Central Bank.
    2. Andrew Coleman & Brian Silverstone, 2007. "Price changes by firms in New Zealand - some evidence from the Quarterly Survey of Business Opinion," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 70, September.
    3. Matheson, Troy D., 2008. "Phillips curve forecasting in a small open economy," Economics Letters, Elsevier, vol. 98(2), pages 161-166, February.
    4. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-618, Nov.-Dec..
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    Cited by:

    1. Jed Armstrong & Miles Parker, 2016. "How wages are set: evidence from a large survey of firms," Reserve Bank of New Zealand Discussion Paper Series DP2016/03, Reserve Bank of New Zealand.

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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • 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

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