A Phillips curve interpretation of error-correction models of the wage and price dynamics

Søren Harck

Cambridge Journal of Economics, 2009, vol. 33, issue 1, 95-112

Abstract: This paper presents a model of employment, distribution and inflation in which a modern error correction specification of the nominal wage and price dynamics (referring to claims on income by workers and firms) occupies a prominent role. It is brought out, explicitly, how this rather typical error-correction setting, which actually seems to capture the wage and price dynamics of many large-scale econometric models quite well, is fully compatible with the notion of an old-fashioned Phillips curve with finite slope. It is shown how the steady-state impact of various shocks to the model can be profitably conceived of and interpreted in terms of (and to some extent even calculated by means of) this long-run Phillips curve. Copyright The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

Date: 2009
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