Premium
Modelling Wage Growth Dynamics in Italy, 1960‐90
Author(s) -
D'Amato Marcello,
Pistoresi Barbara
Publication year - 1996
Publication title -
labour
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.403
H-Index - 34
eISSN - 1467-9914
pISSN - 1121-7081
DOI - 10.1111/j.1467-9914.1996.tb00090.x
Subject(s) - economics , wage , inflation (cosmology) , disequilibrium , phillips curve , cointegration , econometrics , monetary policy , unemployment , macroeconomics , keynesian economics , labour economics , medicine , physics , theoretical physics , ophthalmology
In this work we analyse the common dynamic properties of wage inflation, price inflation, unemployment and labour productivity using Italian annual data (1960‐90, source: Prometeia). Applying multivariate cointegration technique we test for the presence of a wage equation and a price mark‐up equation. The preferred identification suggests that it is possible to build up an error correction representation for the wage inflation, in which the rate of acceleration in wages depends on the contemporaneous rate of acceleration in prices and on the adjustment to long‐run disequilibrium as represented by a Phillips type relation. This representation is rejected for the price inflation which turns out to be weakly exogenous within the system. Furthermore, there is evidence that wage inflation does not Granger‐cause price inflation. The overall conclusion is that wage inflation does not contribute in explaining the price inflation process and the traditional mark‐up view of inflation is not supported by data. The policy implication is that monetary policy need not respond to wage data because they do not contain additional information about the future path of inflation.