The inflation loop is not a myth

Yannick Lucotte and Florian Pradines-Jobet

Finance Research Letters, 2023, vol. 55, issue PB

Abstract: This paper is part of the current debate around the wage-price spiral as inflation surges rapidly, and it assesses empirically whether the prevalence of wage indexation arrangements and the balance of bargaining power between workers and firms can explain cross-country differences in the dynamics of the inflation spiral. To this end, we estimate an IPVAR model on a sample of 37 OECD and non-OECD economies over the period 1960Q1–2019Q4. The results indicate that wage indexation, trade union density, wage bargaining coverage and a high degree of coordination in the wage-setting process exacerbate the persistence of inflation following an initial price shock. Our findings then suggest that central banks should take the institutional features of the labour market and wage bargaining into consideration in the conduct of their monetary policy.

Keywords: Inflation loop; Wage bargaining; Wage indexation; Union density; Interacted panel VAR (search for similar items in EconPapers)
JEL-codes: E24 E31 J51 J52 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612323003422
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003422

DOI: 10.1016/j.frl.2023.103970

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().