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Macroeconomic stability or cycles? The role of the wage-price spiral

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We derive aggregate supply (AS) relationships for an intermediate-run macro model.The wage-price spiral provides the conceptual framework for a synthesis of different contesting theoretical and empirical perspectives on the AS curve: the Phillips curve model (PCM) and the wage-price equilibrium correction model (WPECM). The generalized AS curve is grafted into a small macro model. We analyze stability conditions, steady states, and dynamic solutions, using a combination of algebra and simulations. The specification of the AS curve, as a PCM or a WPECM, is shown to be important for all aspects of the model's solution, but within each model also the detailed parameterization is of qualitative importance. For example, endogenous cyclical fuctuations are typical for both nominal and real variables, e.g. inflation and unemployment.

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  • Dag Kolsrud & Ragnar Nymoen, 2010. "Macroeconomic stability or cycles? The role of the wage-price spiral," Discussion Papers 625, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:625
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    1. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
    2. Gunnar Bårdsen & Eilev S. Jansen & Ragnar Nymoen, 2004. "Econometric Evaluation of the New Keynesian Phillips Curve," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 671-686, September.
    3. Víctor M. Montuenga‐Gómez & José M. Ramos‐Parreño, 2005. "Reconciling the Wage Curve and the Phillips Curve," Journal of Economic Surveys, Wiley Blackwell, vol. 19(5), pages 735-765, December.
    4. Bardsen, Gunnar & Eitrheim, Oyvind & Jansen, Eilev S. & Nymoen, Ragnar, 2005. "The Econometrics of Macroeconomic Modelling," OUP Catalogue, Oxford University Press, number 9780199246502, Decembrie.
    5. Gunnar Bårdsen & Ragnar Nymoen, 2003. "Testing Steady-State Implications for the NAIRU," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1070-1075, November.
    6. Jeffrey C. Fuhrer, 1995. "The Phillips curve is alive and well," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 41-56.
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    Cited by:

    1. Binh Thai Pham & Hector Sala, 2023. "Fiscal deficits and the socioeconomic consequences of rebalancing: Insights from a TVP‐VAR with stochastic volatility," Australian Economic Papers, Wiley Blackwell, vol. 62(2), pages 214-235, June.
    2. Marit Gjelsvik & Ragnar Nymoen & Victoria Sparrman, 2020. "Cointegration and Structure in Norwegian Wage–Price Dynamics," Econometrics, MDPI, vol. 8(3), pages 1-15, July.
    3. Jean-Marc Ginoux & Franck Jovanovic, 2022. "Solving Vincent Carret's Puzzle: A Rebuttal of Carret's Fallacies and Errors," Working Papers hal-03849582, HAL.
    4. Dag Kolsrud & Ragnar Nymoen, 2012. "Modelling the heuristic dynamics of the wage and price curve model of equilibrium unemployment," Discussion Papers 671, Statistics Norway, Research Department.
    5. Gunnar Bårdsen & Dag Kolsrud & Ragnar Nymoen, 2017. "Forecast robustness in macroeconometric models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 36(6), pages 629-639, September.
    6. Nymoen, Ragnar & Sparrman, Victoria, 2012. "Panel Data Evidence on the Role of Institutions and Shocks for Unemployment Dynamics and Equilibrium," Memorandum 20/2012, Oslo University, Department of Economics.
    7. Ragnar Nymoen, 2017. "Between Institutions and Global Forces: Norwegian Wage Formation Since Industrialisation," Econometrics, MDPI, vol. 5(1), pages 1-54, January.
    8. KARGI, Bilal, 2013. "Ücret Yapışkanlığı Hipotezi'nin Test Edilmesi: Türkiye'de Asgari Ücret ve Büyüme Üzerine Zaman Serileri Analizi (2005-2012) [Testing Wage Rigidity Stickiness Hypothesis: Time Series Analysis on the," MPRA Paper 55695, University Library of Munich, Germany.

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    More about this item

    Keywords

    AS-AD; cycles; dynamics; equilibrium correction; macroeconomics; nominal rigidity; Phillips curve; unemployment; wage-price spiral.;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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