Modelling Wages and Prices in Australia
41 Pages Posted: 2 Nov 2005
Date Written: September 2005
Abstract
Empirical models of Australian wages and prices are either single equation, equilibrium correction models or structural VAR models. Both theory and empirical evidence from other countries, however, suggests that wages and prices are jointly determined. Consequently, this paper estimates a simultaneous equation model of wages and prices for Australia, underpinned by a competing claims framework of imperfect competition. Two separate cointegrating relationships for wages and prices are identified by imposing the economic hypotheses implied by the theory. The steady-state relationships for wages and prices are then embedded in a parsimonious, dynamic wage-price model.
Keywords: wage and price, cointegration, dynamic modelling, partial systems, structural breaks
JEL Classification: E52, C53
Suggested Citation: Suggested Citation
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