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Empirical Studies of the Price Equation

In: Inflation: Theory and Policy

Author

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  • A. J. Hagger

    (University of Tasmania)

Abstract

From the survey of models of the inflationary process given in Chapter 2 it will be clear that there are two relationships which play a dominant role in the modern theory of inflation. One of these is the ‘price equation’ — a relationship which sets out to explain either the level of prices, or the rate of increase of prices, in the mark-up sector as a whole or in some sub-sector of the mark-up sector. The other is the ‘wage equation’, which is a relationship purporting to explain either the level, or the rate of increase of money wages per man or per man-hour in the mark-up sector or in some part of that sector. While it is certainly possible to explain inflation without recourse to a price and/or wage equation (witness the Keynesian model of Section 2.2), inflation theorists have come to rely increasingly on these two relationships and they now occupy the same central position in models of the inflationary process as the consumption function occupies in Keynesian models of real-income determination.

Suggested Citation

  • A. J. Hagger, 1977. "Empirical Studies of the Price Equation," Palgrave Macmillan Books, in: Inflation: Theory and Policy, chapter 4, pages 71-91, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-15735-8_4
    DOI: 10.1007/978-1-349-15735-8_4
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