Theoretical and Applied Economics
No. 5 / 2010 (546)
Causality between Prices and Wages: VECM Analysis for EU-12
University of Prishtina
Abstract. The literature on causality as well as the empirical evidence clearly shows that there are two opposing groups of economists, who support different hypotheses with respect to the flow of causality in the price-wage causal relationship. The first group argues that causality runs from wages to price, whereas the second argue that effect flows from prices to wages. Nonetheless, there is at least some consensus that researchers conclusions may be contingent on the type of data employed, applied econometric model, or even that the relationship may vary through economic cycles. This paper empirically examines the pricewage causal relationship in EMU, by using OLS and VECM analysis, and also it provides robust evidence in support of a bilateral causal relationship between prices and wages, both in long-run as well as in the short-run. Prior to designing and estimating the econometric model we have performed stationarity tests for the employed price, wage and productivity variables. Additionally, we have also specified the model taking into account the lag order as well as the rank of co-integration for the co-integrated variables. Furthermore, we have also applied respective restrictions on the parameters of the estimated VECM and finally model robustness checks indicate that results are statistically robust. Although far from closing the issue of causality between prices and variables, this paper at least provides some fresh evidence for the case of EMU.
Keywords: causality; co-integration; granger; determinants of inflation; VECM.
Contents
- The Liquidity of the Bucharest Stock Exchange (BSE) during the Financial Crisis
Liviu GEAMBAŞU
Ion STANCU
- Causality between Prices and Wages: VECM Analysis for EU-12
Adriatik HOXHA
- Relevant Costs for Decision in an Effective Controlling System
Mihaela TULVINSCHI
- Increasing Responsibility towards Environment
Mihaela COMĂNESCU
- A Study of Customer Relationship Management Practices in Madhya Pradesh State
Tourism Services
Dharmendra MEHTA
Jitendra K. SHARMA
Naveen K. MEHTA
- The Law of Entropy – the Most Economical of All Natural Laws. Current Manifestations
of World Economics
Niţă DOBROTĂ
Adrian VIERIŢĂ
- Clusters - Tourism Activity Increase Competitiveness Support
Carmen IORDACHE
Iuliana CIOCHINĂ
Mihaela ASANDEI