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Economic Perspectives, Vol. 18, No. 2, March 1994
Long-run labor market dynamics and short-run inflation
This article analyzes a simple forecasting model of wage and price inflation. Economic theory affords useful insight into the long-term relationship between wage and price inflation, but less insight into their short-term dynamics. By using the error corrections framework studied by Engle and Granger (1987), the model accounts for the long-run restriction on wage and price inflation, but leaves their short-run dynamics unconstrained.
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