IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/34095.html
   My bibliography  Save this paper

Causal relationship between wages and prices in UK: VECM analysis and Granger causality testing

Author

Listed:
  • Josheski, Dushko
  • Lazarov, Darko
  • Fotov, Risto
  • Koteski, Cane

Abstract

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.

Suggested Citation

  • Josheski, Dushko & Lazarov, Darko & Fotov, Risto & Koteski, Cane, 2011. "Causal relationship between wages and prices in UK: VECM analysis and Granger causality testing," MPRA Paper 34095, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:34095
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/34095/1/MPRA_paper_34095.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Erica L. Groshen & Mark E. Schweitzer, 1994. "The effects of inflation on wage adjustments in firm-level data: grease or sand?," Working Paper 9418, Federal Reserve Bank of Cleveland.
    2. Saten Kumar & Don J. Webber & Geoff Perry, 2012. "Real wages, inflation and labour productivity in Australia," Applied Economics, Taylor & Francis Journals, vol. 44(23), pages 2945-2954, August.
    3. 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.
    4. 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.
    5. 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.
    6. Robertson, Raymond, 2004. "Relative prices and wage inequality: evidence from Mexico," Journal of International Economics, Elsevier, vol. 64(2), pages 387-409, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    VECM; Granger causality; real wages; prices; cointegration ; OLS;

    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
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.