Wage and Price Dynamics in Portugal
Carlos Robalo Marques
Bank of Portugal - Economic Research Department
October 13, 2008
ECB Working Paper No. 945
This paper investigates the persistence of aggregate wages and prices in Portugal assuming a model of a unionized economy with imperfect competition. An impulse response analysis is conducted where the structural shocks are identified by taking into account the long-run properties of the model, as well as the cointegrating and weak-exogeneity properties of the system. Real wages and wage inflation emerge as especially persistent following an import price shock, while price inflation is more persistent following an unemployment shock. At the business cycle horizon variation in the forecast errors of wages is attributable mainly to unemployment shocks (about 80 percent), whereas variation in the forecast errors of prices is attributable mainly to import price shocks (about 60 percent) and to unemployment shocks (around 20 percent). Productivity shocks explain somewhat less than 10 percent of the variation in forecast errors of wages and prices.
Number of Pages in PDF File: 58
Keywords: wages, prices, impulse response function, persistence, structural error-correction model
JEL Classification: C32, C51, E31, J30working papers series
Date posted: September 23, 2009
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