Cost and Price Movements in Business Cycle Theories and Experience: Hypotheses of Sticky Wages and Prices (See Also Wp3132-Send Out Together)

56 Pages Posted: 29 Dec 2006 Last revised: 24 Jul 2022

See all articles by Victor Zarnowitz

Victor Zarnowitz

The Conference Board; National Bureau of Economic Research (NBER); University of Chicago

Date Written: October 1989

Abstract

In the post-World War II period, wage and price levels reacted much less to business contractions than they did in earlier times. Inflation prevailed and its persistence increased. The contractions themselves became relatively short and mild. All these developments have some common roots in the major structural, institutional, and policy changes of the era. This paper takes a look at the assumptions concerning wage and price behavior in types of contemporary macroeconomic theories and their implications for the analysis of the business cycle. The various hypotheses of real and nominal "rigidities" are then related to each other and to alternative theories of how markets clear. Long-term stable wage and price arrangements or contracts have important equilibrium aspects that are consistent with high degrees of competition; or, to put it differently, there are good reasons for market clearing by nonprice mechanisms. Further, imperfections of competition, information, and markets make some stickiness of wages and prices inevitable. Changes in relative prices and costs, productivity, and profitability play an important role in the process of propagation of business cycles.

Suggested Citation

Zarnowitz, Victor, Cost and Price Movements in Business Cycle Theories and Experience: Hypotheses of Sticky Wages and Prices (See Also Wp3132-Send Out Together) (October 1989). NBER Working Paper No. w3131, Available at SSRN: https://ssrn.com/abstract=467576

Victor Zarnowitz (Contact Author)

The Conference Board ( email )

845 Third Avenue
New York, NY 10022
United States
212-339-0432 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Chicago

1101 East 58th Street
Chicago, IL 60637
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
43
Abstract Views
585
PlumX Metrics