Stable cointegrating regressions: Fully-modified estimates for inflation and employment cost indices

Rosemary D. Rossiter ()
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Rosemary D. Rossiter: Department of Economics, Ohio University, Athens, OH 45701, USA

Empirical Economics, 1999, vol. 24, issue 3, 482 pages

Abstract: This paper investigates the stability of relationships between inflation and changes in employer cost for labor using tests based on the null hypothesis of no cointegration (Gregory and Hansen (1996a)) as well as tests based on the null hypothesis of cointegration (Hansen (1992)). In addition to specifications which include wages or unit labor cost, employment cost indices for compensation and wages are used to eliminate composition bias over the business cycle. Empirical results support stability and fully-modified estimates are obtained using the semiparametric approach of Phillips (1995). In contrast to studies which have found only one-way causality, this paper presents empirical evidence of feedback between inflation and employer cost for labor, consistent with an expectations-adjusted Phillips's Curve.

Keywords: Stable; cointegrating; regressions; ·; expectations-adjusted; Philips; Curve; ·; employment; cost; indices (search for similar items in EconPapers)
JEL-codes: C5 E31 (search for similar items in EconPapers)
Date: 1999-08-16
Note: received: July 1997/final version received: September 1998
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Citations: View citations in EconPapers (1)

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