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Australian Wage and Price Inflation: 1971-1994

  • Lynne Cockerell

    (Reserve Bank of Australia)

  • Bill Russell

    (Reserve Bank of Australia)

This paper estimates an imperfect competition model of price and wage adjustment for Australia. The results suggest the Australian economy can be characterised as one where firms are trying to achieve their desired long-run income share while workers are primarily concerned with maintaining their real wage. The estimation of the price-wage model is complicated by two problems; namely the substantial and persistent changes in income shares and the changing means in the inflation series over the sample. The first problem was overcome by extending the estimation period to include the wage shocks in the early 1970s which allows the income shares to be characterised as stationary. The second problem was addressed by imposing a restriction to the wage equation. This allowed a range of possible steady state inflation rates in the model over the estimated sample.

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Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9509.

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Date of creation: Nov 1995
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Handle: RePEc:rba:rbardp:rdp9509
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  1. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
  2. Gordon de Brouwer & Neil R. Ericsson, 1995. "Modelling inflation in Australia," International Finance Discussion Papers 530, Board of Governors of the Federal Reserve System (U.S.).
  3. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345.
  4. Franz, Wolfgang & Gordon, Robert J., 1993. "German and American wage and price dynamics : Differences and common themes," European Economic Review, Elsevier, vol. 37(4), pages 719-754, May.
  5. David Gruen & Geoffrey Shuetrim, 1994. "Internationalisation and the Macroeconomy," RBA Annual Conference Volume, in: Philip Lowe & Jacqueline Dwyer (ed.), International Intergration of the Australian Economy Reserve Bank of Australia.
  6. Lewis, Philip E T & MacDonald, Garry A, 1993. "Testing for Equilibrium in the Australian Wage Equation," The Economic Record, The Economic Society of Australia, vol. 69(206), pages 295-304, September.
  7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  8. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  9. C Bean, 1992. "European Unemployment: A Survey," CEP Discussion Papers dp0071, Centre for Economic Performance, LSE.
  10. Carlin, Wendy & Soskice, David, 1990. "Macroeconomics and the Wage Bargain: A Modern Approach to Employment, Inflation, and the Exchange Rate," OUP Catalogue, Oxford University Press, number 9780198772446.
  11. Benabou, Roland, 1992. "Inflation and markups : Theories and evidence from the retail trade sector," European Economic Review, Elsevier, vol. 36(2-3), pages 566-574, April.
  12. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  13. Yash P. Mehra, 1993. "Unit labor costs and the price level," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 35-52.
  14. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, December.
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