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

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  • Rosemary D. Rossiter

    (Department of Economics, Ohio University, Athens, OH 45701, USA)

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.

Suggested Citation

  • Rosemary D. Rossiter, 1999. "Stable cointegrating regressions: Fully-modified estimates for inflation and employment cost indices," Empirical Economics, Springer, vol. 24(3), pages 471-482.
    • Handle: RePEc:spr:empeco:v:24:y:1999:i:3:p:471-482
    Note: received: July 1997/final version received: September 1998
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    Cited by:

    1. George Hondroyiannis, 2001. "The Wage Growth And Inflation Nexus In A Dynamic Multivariate Context: New Evidence From Greece," International Economic Journal, Taylor & Francis Journals, vol. 17(1), pages 121-138.

    More about this item

    Keywords

    Stable cointegrating regressions · expectations-adjusted Philips Curve · employment cost indices;

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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