Policy regimes and the persistence of wage inflation and unemployment

Robert Anderton ()

No 74, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: This paper uses time‐varying parameter estimation techniques to discover whether the ERM member countries experienced a regime change to a lower degree of persistence for both wage inflation and unemployment in the 1980s. The process determining wage inflation and unemployment in some non-ERM countries is evaluated and compared with members of the ERM in order to see if there is any discernible difference. The time-varying parameter results show that the persistence of wage inflation may have changed over the 1980s for some countries but that this experience was not unique to ERM membership. However, the time profile of the wage inflation persistence parameter for some ERM member countries corresponds with policy shifts related to ERM membership. Other results indicate that ERM membership seems to be associated with a decline in the mean level of wage inflation, but the evidence is mixed as to whether this has been accompanied by a change in the underlying behaviour determining wage inflation dynamics. Furthermore, only a few countries show a decline in the persistence of unemployment in the 1980s despite experiencing a decline in nominal inertia and implementing labour market reforms. Perhaps higher levels of unemployment activate or strengthen mechanisms which increase the persistence of unemployment. Contact NIESR if copy required

Date: 1995-02
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Persistent link: https://EconPapers.repec.org/RePEc:nsr:niesrd:74

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