The Wage-Price Spiral : Industrial Country Evidence and Implications

The Wage-Price Spiral : Industrial Country Evidence and Implications
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Volume/Issue:
2003/164
Series:
IMF Working Papers
Author(s):
Magda Kandil
Publisher:
INTERNATIONAL MONETARY FUND
Published Date:
August 2003
DOI:
http://dx.doi.org/10.5089/9781451858013.001
ISBN:
9781451858013
ISSN:
1018-5941
Page:
36
Using quarterly time-series data for a sample of twelve industrial countries, the paper investigates the dynamics of nominal wage and price adjustments in the face of aggregate demand shocks. The evidence illustrates patterns of the wage-price spiral and accompanying fluctuations. During economic expansions, the overlap of nominal adjustments in labor and product markets prolongs output expansion while maintaining or increasing the standard of living. In contrast, structural and institutional settings appear to have moderated the severity of the effects of contractionary demand shocks on real output growth and the standard of living in the variety of countries under investigation.
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