IDEAS home Printed from https://ideas.repec.org/p/nig/wpaper/0006.html
   My bibliography  Save this paper

The Relationship Between Inflation and Wage Growth in the Irish Economy

Author

Listed:
  • Stilianos Fountas
  • Breda Lally

    (Department of Economics, National University of Ireland, Galway)

  • Jyh-lin Wu

    (Department of Economics, National University of Ireland, Galway)

Abstract

This paper tests for the long-run and short-run relationship between prices and wages in the Irish economy over the 1975-1992 period. Using recent econometric techniques in the analysis of time series, we conclude that there is a long-run equilibrium relationship between prices, wages and an excess demand variable in agreement with the Expectations-Augmented Phillips Curve theory of inflation. Making use of error-correction equations in order to study the short-run dynamics, we find that the long-run relationship between prices and wages is due to Granger causality running from wage inflation to price inflation. In addition, the predictive ability of excess demand is weak with respect to wage inflation but very strong with respect to price inflation. These results imply (a) relatively strong evidence in favour of a mark-up price equation consistent with the Expectations-Augmented Phillips Curve theory of inflation, and (b), very weak evidence for the predictive power of past inflation and the output gap for wages, i.e., a wage-type Phillips curve effect. In other words, the results provide strong support for the claim that inflation in Ireland has cost-push elements and very weak support for the existence of demand-pull elements.

Suggested Citation

  • Stilianos Fountas & Breda Lally & Jyh-lin Wu, 1995. "The Relationship Between Inflation and Wage Growth in the Irish Economy," Working Papers 06, National University of Ireland Galway, Department of Economics, revised 1995.
    • Handle: RePEc:nig:wpaper:0006
    as

    Download full text from publisher

    File URL: http://www.economics.nuig.ie/resrch/paper.php?pid=10
    File Function: First version, 1995
    Download Restriction: no
    File URL: http://www.economics.nuig.ie/resrch/paper.php?pid=10
    File Function: Revised version, 1995
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Saten Kumar & Don J. Webber & Geoff Perry, 2012. "Real wages, inflation and labour productivity in Australia," Applied Economics, Taylor & Francis Journals, vol. 44(23), pages 2945-2954, August.
    2. Zungun Deniz & Ayvaz Guven Emine Turkan, 2015. "The Footprints Of Stagflation In Turkish Economy," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 46-60, December.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nig:wpaper:0006. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Srinivas Raghavendra (email available below). General contact details of provider: https://edirc.repec.org/data/deucgie.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.