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.
