Wage and price dynamics in Portugal

Carlos Marques

No 945, Working Paper Series from European Central Bank

Abstract: This paper investigates the persistence of aggregate wages and prices in Portugal assuming a model of a unionised economy with imperfect competition. An impulse response analysis is conducted where the structural shocks are identified by taking into account the long-run properties of the model, as well as the co-integrating and weak-exogeneity properties of the system. Real wages and wage inflation emerge as especially persistent following an import price shock, while price inflation is more persistent following an unemployment shock. At the business cycle horizon variation in the forecast errors of wages is attributable mainly to unemployment shocks (about 80 percent), whereas variation in the forecast errors of prices is attributable mainly to import price shocks (about 60 percent) and to unemployment shocks (around 20 percent). Productivity shocks explain somewhat less than 10 percent of the variation in forecast errors of wages and prices. JEL Classification: C32, C51, E31, J30

Keywords: impulse response function; persistence; prices; structural error-correction model; wages (search for similar items in EconPapers)
Date: 2008-10
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Citations: View citations in EconPapers (4)

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Working Paper: Wage and Price Dynamics in Portugal (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2008945

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