The price-wage inflationary spiral: The mixed economic case

Aleksander Welfe

No 13, Discussion Papers from University of Konstanz, Center for International Labor Economics (CILE)

Abstract: In the paper we have addressed the problem of price-wage relationship modelling in case of the mixed economy. The empirical investigation was based on the Polish annual data for the period of centrally planned system (1964-1989) and on quarterly data for the period of transition towards the market economy (1990.1-1993.3). The traditional approach proved to be rather inappropriate because of the variables nonstationarity. We tried to identify the long-run behaviour applying the two-step Engle-Granger's or alternatively, Johansen's maximum likelihood (ML) procedures. The ML estimator provided better estimates of cointegration vectors and, which is even more important, allowed to find as many as three of them. The main conclusion which can be drawn from the empirical findings is that three variables: price index, average wages and labour productivity form a multi-dimentional equilibrium space. This property of the described phenomena should be seriously taken into account while building macroeconometric models explaining the behaviour of the Polish economy. On the other hand, the results confirm that nominal wages are determined to large extend by prices and labour productivity while prices depend oh wage growth and prices of imported goods. This is in accordance with the findings based on more traditional approaches. Nevertheless, it should be emphasised that the adjustment processes are of intertemporal rather than simultaneous character which was not adequately reflected in so far constructed models. The existence of three cointegration vectors being troublesome because of the interpretation problems is not unusual. However, if it is not a result of misspecification and/or small sample bias, proves that much remains to be learned about the price-wage mechanisms functioning in the economies having the mixed character.

Date: 1994
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/92460/1/717200450.pdf (application/pdf)

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:zbw:koncil:13

Access Statistics for this paper

More papers in Discussion Papers from University of Konstanz, Center for International Labor Economics (CILE) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().