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The Price-Wage Mechanism in Poland: An Endogenous Switching Model

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  • Jacek Osiewalski
  • Aleksander Welfe

Abstract

This paper proposes a two-equation price-wage model that enables to test whether the inflationary pressure on wage rate is only present when the rate of inflation is greater than some threshold value. Since the likelihood function for this model is very nonstandard, we develop a small-sample Bayesian approach to estimate its parameters. Our empirical results for Poland, 1962–1993, give support to the hypothesis of the price- wage spiral with a positive threshold value of inflation. Copyright Kluwer Academic Publishers 1997

Suggested Citation

  • Jacek Osiewalski & Aleksander Welfe, 1997. "The Price-Wage Mechanism in Poland: An Endogenous Switching Model," Economic Change and Restructuring, Springer, vol. 30(2), pages 205-220, May.
    • Handle: RePEc:kap:ecopln:v:30:y:1997:i:2:p:205-220
    DOI: 10.1023/A:1003015909891
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    References listed on IDEAS

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    1. Franz, Wolfgang & Gordon, Robert J., 1993. "German and American wage and price dynamics : Differences and common themes," European Economic Review, Elsevier, vol. 37(4), pages 719-754, May.
    2. Welfe, Aleksander, 1996. "The Price-Wage Inflationary Spiral in Poland," Economic Change and Restructuring, Springer, vol. 29(1), pages 33-50.
    3. Osiewalski, Jacek & Steel, Mark F. J., 1993. "Robust bayesian inference in elliptical regression models," Journal of Econometrics, Elsevier, vol. 57(1-3), pages 345-363.
    4. Welfe, Aleksander, 1991. "Modelling Wages in Centrally Planned Economies: The Case of Poland," Economic Change and Restructuring, Springer, vol. 24(1), pages 47-58.
    5. Daniel B. Suits, 1955. "An Econometric Model of the Watermelon Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 37(2), pages 237-251.
    6. Otto Eckstein, 1964. "A Theory of the Wage-Price Process in Modern Industry," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 31(4), pages 267-286.
    7. Pole, A. M. & Smith, A. F. M., 1985. "A bayesian analysis of some threshold switching models," Journal of Econometrics, Elsevier, vol. 29(1-2), pages 97-119.
    8. Maddala, G S & Nelson, Forrest D, 1974. "Maximum Likelihood Methods for Models of Markets in Disequilibrium," Econometrica, Econometric Society, vol. 42(6), pages 1013-1030, November.
    9. Amemiya, Takeshi, 1974. "A Note on a Fair and Jaffee Model," Econometrica, Econometric Society, vol. 42(4), pages 759-762, July.
    10. Amemiya, Takeshi, 1974. "Multivariate Regression and Simultaneous Equation Models when the Dependent Variables Are Truncated Normal," Econometrica, Econometric Society, vol. 42(6), pages 999-1012, November.
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    Cited by:

    1. Welfe, Aleksander, 2000. "Modeling inflation in Poland," Economic Modelling, Elsevier, vol. 17(3), pages 375-385, August.
    2. Osiewalski, Jacek & Welfe, Aleksander, 1998. "The price-wage mechanism: An endogenous switching model," European Economic Review, Elsevier, vol. 42(2), pages 365-374, February.
    3. Tihomir Enev & Kenneth Koford, 2000. "The Effect of Incomes Policies on Inflation in Bulgaria and Poland," Economic Change and Restructuring, Springer, vol. 33(3), pages 141-169, October.

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