IDEAS home Printed from https://ideas.repec.org/p/zbw/koncil/13.html
   My bibliography  Save this paper

The price-wage inflationary spiral: The mixed economic case

Author

Listed:
  • Welfe, Aleksander

Abstract

In the paper we have addressed the problem of price-wage relationship modelling in case of the mixed economy. The empirical investigation was based on the Polish annual data for the period of centrally planned system (1964-1989) and on quarterly data for the period of transition towards the market economy (1990.1-1993.3). The traditional approach proved to be rather inappropriate because of the variables nonstationarity. We tried to identify the long-run behaviour applying the two-step Engle-Granger's or alternatively, Johansen's maximum likelihood (ML) procedures. The ML estimator provided better estimates of cointegration vectors and, which is even more important, allowed to find as many as three of them. The main conclusion which can be drawn from the empirical findings is that three variables: price index, average wages and labour productivity form a multi-dimentional equilibrium space. This property of the described phenomena should be seriously taken into account while building macroeconometric models explaining the behaviour of the Polish economy. On the other hand, the results confirm that nominal wages are determined to large extend by prices and labour productivity while prices depend oh wage growth and prices of imported goods. This is in accordance with the findings based on more traditional approaches. Nevertheless, it should be emphasised that the adjustment processes are of intertemporal rather than simultaneous character which was not adequately reflected in so far constructed models. The existence of three cointegration vectors being troublesome because of the interpretation problems is not unusual. However, if it is not a result of misspecification and/or small sample bias, proves that much remains to be learned about the price-wage mechanisms functioning in the economies having the mixed character.

Suggested Citation

  • Welfe, Aleksander, 1994. "The price-wage inflationary spiral: The mixed economic case," Discussion Papers 13, University of Konstanz, Center for International Labor Economics (CILE).
    • Handle: RePEc:zbw:koncil:13
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/92460/1/717200450.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    3. Wojciech Charemza & Richard E. Quandt, 1982. "Models and Estimation of Disequilibrium for Centrally Planned Economies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 109-116.
    4. Lubrano, Michel & Shadman-Mehta, Fatemeh & Sneessens, Henri R, 1996. "Real Wages, Quantity Constraints and Equilibrium Unemployment: Belgium, 1955-1988," Empirical Economics, Springer, vol. 21(3), pages 427-457.
    5. Welfe, Aleksander, 1991. "Modelling Wages in Centrally Planned Economies: The Case of Poland," Economic Change and Restructuring, Springer, vol. 24(1), pages 47-58.
    6. Hall, S G, 1989. "Maximum Likelihood Estimation of Cointegration Vectors: An Example of the Johansen Procedure," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(2), pages 213-218, March.
    7. Welfe, Aleksander, 1990. "State budget and inflation processes : Estimates for Poland," Journal of Public Economics, Elsevier, vol. 43(2), pages 161-180, November.
    8. Podkaminer, Leon, 1982. "Estimates of the Disequilibria in Poland's Consumer Markets, 1965-1978," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 423-431, August.
    9. Johansen, Soren, 1992. "Determination of Cointegration Rank in the Presence of a Linear Trend," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 383-397, August.
    10. Engle, R. F. & Granger, C. W. J. (ed.), 1991. "Long-Run Economic Relationships: Readings in Cointegration," OUP Catalogue, Oxford University Press, number 9780198283393.
    11. Hall, Anthony D & Anderson, Heather M & Granger, Clive W J, 1992. "A Cointegration Analysis of Treasury Bill Yields," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 116-126, February.
    12. Welfe, Wladyslaw, 1993. "Topics in Macro-modelling of East European Countries in the Period of Transition," Economic Change and Restructuring, Springer, vol. 26(1), pages 105-126.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Franz, Wolfgang, 1994. "Central and East European labor markets in transition: Developments, causes, and cures," Discussion Papers 19, University of Konstanz, Center for International Labor Economics (CILE).
    2. Micha³ Majsterek, 2018. "Stock and Flows in the Countegration Context," Lodz Economics Working Papers 3/2018, University of Lodz, Faculty of Economics and Sociology.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Welfe, Aleksander, 1996. "The Price-Wage Inflationary Spiral in Poland," Economic Change and Restructuring, Springer, vol. 29(1), pages 33-50.
    2. Robert Mulligan & Erwin Nijsse, 2001. "Shortage and currency substitution in transition economies: Bulgaria, Hungary, Poland, and Romania," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 7(3), pages 275-295, August.
    3. Levent KORAP, 2008. "Exchange Rate Determination Of Tl/Us$:A Co-Integration Approach," Istanbul University Econometrics and Statistics e-Journal, Department of Econometrics, Faculty of Economics, Istanbul University, vol. 7(1), pages 24-50, May.
    4. Rocco Mosconi & Paolo Paruolo, 2022. "A Conversation with Søren Johansen," Econometrics, MDPI, vol. 10(2), pages 1-16, April.
    5. Oh, Wankeun & Lee, Kihoon, 2004. "Energy consumption and economic growth in Korea: testing the causality relation," Journal of Policy Modeling, Elsevier, vol. 26(8-9), pages 973-981, December.
    6. Alexander Schätz, 2010. "Macroeconomic Effects on Emerging Market Sector Indices," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 9(2), pages 131-169, August.
    7. Jian Yang, 2005. "Government bond market linkages: evidence from Europe," Applied Financial Economics, Taylor & Francis Journals, vol. 15(9), pages 599-610.
    8. Moschos, D. & Stournaras, Y., 1998. "Domestic and foreign price links in an aggregate supply framework: The case of Greece," Journal of Development Economics, Elsevier, vol. 56(1), pages 141-157, June.
    9. Committee, Nobel Prize, 2003. "Time-series Econometrics: Cointegration and Autoregressive Conditional Heteroskedasticity," Nobel Prize in Economics documents 2003-1, Nobel Prize Committee.
    10. Charles G. Renfro, 2009. "The Practice of Econometric Theory," Advanced Studies in Theoretical and Applied Econometrics, Springer, number 978-3-540-75571-5, July-Dece.
    11. Magali Jaoul, 2004. "Enseignement supérieur et marchés du travail. Analyse économétrique de la théorie de l’engorgement," Économie et Prévision, Programme National Persée, vol. 166(5), pages 39-57.
    12. Michael Bowe & Nikolaos Mylonidis, 1999. "Is the European Capital Market Ready for the Single Currency?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(1‐2), pages 1-32, January.
    13. de Brouwer, Gordon & Ericsson, Neil R, 1998. "Modeling Inflation in Australia," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 433-449, October.
    14. Georgoutsos D. & Kouretas G., 2002. "Cointegration, Uncoverd Interest Parity and the Term Structure of Interest Rates: Some International Evidence," European Research Studies Journal, European Research Studies Journal, vol. 0(1-2), pages 7-22, January -.
    15. Debabrata Bagchi & Georgios E. Chortareas & Stephen M. Miller, 2004. "The Real Exchange Rate in Small, Open, Developed Economies: Evidence from Cointegration Analysis," The Economic Record, The Economic Society of Australia, vol. 80(248), pages 76-88, March.
    16. Hossain, Ferdaus, 1995. "Current account determination in the intertemporal framework: an empirical analysis," ISU General Staff Papers 1995010108000011939, Iowa State University, Department of Economics.
    17. Cuthbertson, Keith & Hayes, Simon & Nitzsche, Dirk, 1998. "Interest Rates in Germany and the UK: Cointegration and Error Correction Models," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(1), pages 27-43, January.
    18. Bekiros, Stelios & Avdoulas, Christos & Hassapis, Christis, 2018. "Nonlinear equilibrium adjustment dynamics and predictability of the term structure of interest rates," International Review of Financial Analysis, Elsevier, vol. 55(C), pages 140-155.
    19. Judith A. Giles & Sadaf Mirza, 1999. "Some Pretesting Issues on Testing for Granger Noncausality," Econometrics Working Papers 9914, Department of Economics, University of Victoria.
    20. Luintel, K. B. & Paudyal, K., 1998. "Common stochastic trends between forward and spot exchange rates," Journal of International Money and Finance, Elsevier, vol. 17(2), pages 279-297, April.

    More about this item

    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:zbw:koncil:13. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/fwkonde.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.