Causal relationship between wages and prices in UK: VECM analysis and Granger causality testing
In this paper the issue of causality between wages and prices in UK has been tested. OLS relationship between prices and wages is positive; productivity is not significant in determination of prices or wages too. These variables from these statistics we can see that are stationary at 1 lag, i.e. they are I(1) variables, except for CPI variables which is I(2) variable. From the VECM model, If the log wages increases by 1%, it is expected that the log of prices would increase by 5.24 percent. In other words, a 1 percent increase in the wages would induce a 5.24 percent increase in the prices.About the short run parameters, the estimators of parameters associated with lagged differences of variables may be interpreted in the usual way.Productivity was exogenous repressor and it is deleted since it has coefficient no different than zero. The relation (causation) between these two variables is from CPI_log→ real_wage_log .Granger causality test showed that only real wages influence CPI or consumer price index that proxies prices, this is one way relationship, price do not influence wages in our model.
|Date of creation:||13 Oct 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robertson, Raymond, 2004. "Relative prices and wage inequality: evidence from Mexico," Journal of International Economics, Elsevier, vol. 64(2), pages 387-409, December.
- Saten Kumar & Don J. Webber & Geoff Perry, 2012.
"Real wages, inflation and labour productivity in Australia,"
Taylor & Francis Journals, vol. 44(23), pages 2945-2954, August.
- Kumar, Saten & Webber, Don J. & Perry, Geoff, 2009. "Real Wages, Inflation and Labour Productivity in Australia," MPRA Paper 19293, University Library of Munich, Germany.
- Erica L. Groshen & Mark E. Schweitzer, 1994.
"The effects of inflation on wage adjustments in firm-level data: grease or sand?,"
9418, Federal Reserve Bank of Cleveland.
- Erica L. Groshen & Mark E. Schweitzer, 1996. "The effects of inflation on wage adjustments in firm-level data: grease or sand?," Staff Reports 9, Federal Reserve Bank of New York.
- Jack Strauss & Mark E. Wohar, 2004. "The Linkage between Prices, Wages, and Labor Productivity: A Panel Study of Manufacturing Industries," Southern Economic Journal, Southern Economic Association, vol. 70(4), pages 920-941, April.
- Saten Kumar & Don J. Webber & Geoff Perry, 2009. "Real wages, inflation and labour productivity in Australia," Working Papers 0921, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
- Peter Flaschel & Göran Kauermann & Willi Semmler, 2007. "Testing Wage And Price Phillips Curves For The United States," Metroeconomica, Wiley Blackwell, vol. 58(4), pages 550-581, November.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:34095. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.