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Cost of Living Adjustment and Business Cycles: Disaggregated Evidence

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  • Ms. Magda E. Kandil

Abstract

For a sample of US industries, nominal wage and price inflation follow aggregate price inflation closely during economic expansions. Hence, fluctuations in profit markup and real output are moderate in the face of expansionary demand shocks. During recessions, however, industrial nominal wage deflation exceeds that of the aggregate price level. This is in contras to producers’ attempt to maintain, or even increase, industrial real price inflation during recessions. Consistently, the increase in the profit markup is correlated with an increase in output contraction and a reduction in workers’ real standard of living during recessions.

Suggested Citation

  • Ms. Magda E. Kandil, 2000. "Cost of Living Adjustment and Business Cycles: Disaggregated Evidence," IMF Working Papers 2000/124, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2000/124
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    Cited by:

    1. Kandil, Magda, 2007. "The wage-price spiral: International evidence and implications," Journal of Economics and Business, Elsevier, vol. 59(3), pages 212-240.
    2. Magda Kandil, 2010. "Demand Shocks and the Cyclical Behavior of the Real Wage: Some International Evidence," Journal of Applied Economics, Taylor & Francis Journals, vol. 13(1), pages 135-158, May.

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