Stability and steady state
We want to investigate the dynamics of the wage-price system consisting of equations (6.3), (6.5), and the definitional equation Pt = Фяг + (1 - Ф)рч, 0 <ф< 1. (6.7) …
Causality
The main-course model specifies the following three hypothesis about causation: H4mc mct * We, t- H5 LLKjmc we, t * ws, t H6mc ws, t * pt-> where * denotes …
Econometric evaluation of Nordic structural employment estimates
While early models treated the NAIRU as a quasi fixed parameter, cf. the open economy Phillips curve NAIRU of Chapter 4, the ICM framework provides the intellectual background for inclusion …
Testing the Lucas critique
While it is logically possible that conventional Phillips curves are ‘really’ Lucas supply functions in reverse, that claim can be tested for specific models. Finding that the Phillips curve is …
Introduction: small vs. large models
Macroeconometric modelling aims at explaining the empirical behaviour of an actual economic system. Such models will be systems of inter-linked equations estimated from time-series data using statistical or econometric techniques. …
The stable solution of the conditional wage-price system
If the sufficient conditions in (6.18) hold, we obtain a dynamic equilibrium— the ‘tug of war’ between workers and firms reaches a stalemate. The system is stable in the sense …
Early empiricism
In the reconstruction of the model that we have undertaken above, no inconsistencies exist between Aukrust’s long-term model and the steady-state model in growth-rate form. However, economists and econometricians have …
The NAWRU
The NAWRU indicator has been used extensively by the OECD and others on several important issues, including policy evaluation and estimation of potential output and the structural budget balance; see …
An empirical open economy Phillips curve system
In this section, we first specify and then evaluate an open economy Phillips curve for the Norwegian manufacturing sector. We use an annual data set for the period 1965-98, which …
The roles of statistics and economic theory in macroeconometrics
Macroeconometrics draws upon and combines two academic disciplines— economics and statistics. There is hardly any doubt that statisticians have had a decisive influence on quantitative economics in general and on …
Cointegration, long-run multipliers, and the steady state
There is a correspondence between the elasticities in the equations that describe the steady-state growth paths and the elasticities in the cointegrating relationships (5.11) and (5.14). However, care must be …
Summary
Unlike the other approaches to modelling wages and prices that we discuss in the next chapters, Aukrust’s model (or the Scandinavian model for that matter) is seldom cited in the …
Do NAWRU fluctuations match up with structural changes in wage formation?
We have estimated equilibrium correction wage equations: Awct = во - ві(wc - q - a)t-i - вои + вхХг + £wt, (6.48) which are similar to, for example, Nymoen …
Wage bargaining and. price-setting
In this chapter we go a step forward to compare both the main-course model and the Phillips curve by introducing the Layard-Nickell wage - curve model of incomplete competition. It …
Role of economic theory in macroeconometrics
The Cowles Commission research agenda focused on simultaneous equation models (SEMs) and put much weight on the issue of identification. In dealing with these issues, economic theory plays an important …
Nominal rigidity despite dynamic homogeneity
At first sight, one might suspect that the result that uss is undetermined by the wage - and price-setting equations has to do with dynamic inhomogeneity, or ‘monetary illusion’. For …
The Phillips curve
The Phillips curve ranges as the dominant approach to wage and price modelling in macroeconomics. In the United States, in particular, it retains its role as the operational framework for …
. Summary of time varying NAIRUs in the Nordic countries
In sum, for all three countries, we obtain stable empirical wage equations over the period 1964-94 (Denmark 1968-94). Nor do we detect changes in explanatory variables in the wage-setting that …
Wage bargaining and monopolistic competition
There is a number of specialised models of ‘non-competitive’ wage-setting; see, for example, Layard et al. (1991: ch. 7). Our aim in this section is to represent the common features …
Identifying partial structure in submodels
Model builders often face demands from model users that are incompatible with a 3-5 equations closed form model. Hence, modellers often find themselves dealing with submodels for the different sectors …
An important unstable solution: the ‘no wedge’ case
Real-wage resistance is an inherent aspect of the stable solution, as 6wu = 0 is one of the conditions for the stability of the wage-price system, cf. equation (6.15). However, …
