Theoretical and Applied Economics
No. 1 / 2016 (606), Spring
Analysis of the causal link between wages and prices in UK
University of Prishtina
Abstract. As a matter of fact, the consensus of empirical evidence on the wage-price causal relationship reveals that there are two opposing groups of economists supporting conflicting hypotheses with respect to the flow of causality. Equally importantly, the literature review suggests that there is at least some consensus in the fact that inferences of researchers depend on the sample length, type of data employed, applied econometric model, or at the same time the relationship may be subject to the dynamics of economic cycles. In the light of these arguments, this paper conducts an empirical investigation of the wage-price causal relationship in UK by utilizing VAR and VECM models. Prior to designing and estimating econometric models the relevant stationarity tests for the wage, price and productivity variables have been performed. In summary, all three time series data are non-stationary and thus need to be differenced once in order to render them stationary. Correspondingly, the relevant cointegration tests have been performed and they provide robust evidence in support of a strong cointegration relationship between wages and prices. Additionally, respective restrictions on the parameters of estimated models have also been applied in order to derive the most parsimonious model. Regardless of the fact that VAR models tentatively indicate unilateral causality running from prices to wages, the VECM analysis only suggests a strong cointegration relationship and negates short-run causality in any direction. Accordingly, the estimated models have been subjected to diagnostic testing procedures, and these tests firmly indicate that estimated results are statistically robust. At the same time the restricted VECM model provides estimate on the basis of which it can be argued that the assumption of rational expectations in the wageprice relationship is perfectly valid.
Contents
Female entrepreneurial activity in Romania
Analysis of the causal link between wages and prices in UK
Assessing the regional development degree – step one: Calibrating the polar diagram
The relationship between output and asset prices: A time – and frequency – varying approach
Territorial patterns of development in the European Union
Nexus between defense expenditure and economic growth in BRIC economies: An empirical investigation
Efficiency, non-linearity and chaos: evidences from BRICS foreign exchange markets
A theoretical examination of tax evasion among the self-employed
Long-term effects of the investments dynamics in Romania in the post-accession period – a regional approach
A utility based theoretical model for the income-life expectancy curve
Essentials aspects on macroeconomic variables and their correlations
Determinants of the Hungarian forint/ US dollar exchange rate
Macroeconomic strategies for the prevention of economic and financial crisis
Does tourism affect economic growth in Indian states? Evidence from panel ARDL model
Sovereign debt crisis. From challenges to solutions
International trade and tourism for Mediterranean countries: A panel causality analysis
Economic freedom index and stock returns in Malaysia
How budget deficit and current account deficit are interrelated in Indian economy
Study regarding the influence of the endogenous and exogenous factors on credit institution’s return on assets
Effects of oil returns and external debt on the government investment: A case study of Syria