The Microfoundations of the Keynesian Wage-Price Spiral

Christopher Malikane

MPRA Paper from University Library of Munich, Germany

Abstract: We derive the backward-looking Keynesian wage-price spiral from micro-foundations. The optimal price Phillips curve features one lag of price inflation, the lag of the labour share, excess demand pressure, speed-limit effects and supply shocks. The wage Phillips curve features current and lagged price inflation, excess demand pressure up to the second lag, and the lag of nominal wage inflation. We estimate this model for six developed and emerging market economies and find that the model fits the data well. In general, nominal wages are more flexible than prices with respect to demand pressure. The baseline model rejects the inclusion of supply shocks and indexation of wages in developed economies and some emerging markets.

Keywords: microfoundations; wage and price Phillips curves; forward and backward-looking behaviour (search for similar items in EconPapers)
JEL-codes: E31 (search for similar items in EconPapers)
Date: 2012-11-29, Revised 2012
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/42923/1/MPRA_paper_42923.pdf original version (application/pdf)

Related works:
Working Paper: The microfoundations of the Keynesian wage-price spiral (2012)
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:pra:mprapa:42923

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().