The Dynamic Behavior of Wages and Prices: Cointegration Tests within a Large Macroeconomic System | Zendy

Schmidt Martin B. | Zendy

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The Dynamic Behavior of Wages and Prices: Cointegration Tests within a Large Macroeconomic System

Author(s) -

Schmidt Martin B.

Publication year - 2000

Publication title -

southern economic journal

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.762

H-Index - 58

eISSN - 2325-8012

pISSN - 0038-4038

DOI - 10.1002/j.2325-8012.2000.tb00324.x

Subject(s) - cointegration , economics , wage , identification (biology) , econometrics , dual (grammatical number) , vector autoregression , efficiency wage , macroeconomics , labour economics , art , botany , literature , biology

The dynamic relationship between wages and prices has long held a central place within the economic literature. Most macroeconomic models make assumptions as to the causal relationship between the two variables. Unfortunately, empirical investigations have produced widely divergent results. In particular, the present paper examines the results of time‐series studies and argues that the lack of a consensus is due to improperly specified models. Once the wage‐price relationship is embedded within a multiple vector system, identification of a wage‐price cointegrating relationship is significantly improved. In addition, the increased efficiency yields evidence in favor of the dual feedback between wages and prices.

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