Causal Relationship between Wages and Prices in R. Macedonia: VECM Analysis

24 Pages Posted: 22 May 2013 Last revised: 13 Jun 2013

See all articles by Dushko Josheski

Dushko Josheski

University Goce Delcev

Snezana Bardarova

University Goce Delcev - Faculty of Tourism and Business Logistic

Date Written: May 21, 2013

Abstract

In this paper the issue of causality between wages and prices in R.Macedonia has been tested. OLS relationship between prices and wages is positive; productivity is not significant in determination of prices or wages too. Engle-Granger test proved that variables of interest CPI and average real wage are cointegrated, i.e. there exists long run relationship between those variables, when first differenced. While their levels are not cointegrated. ARDL regression proved that between CPI and average real wage there exists almost significant long run relationship (tstat=1.60), and coefficient is of size 0.3353 at one lag. Unit root test showed that CPI and average real wage are I (1) variables. Johansen’s test of cointegration showed that we cannot reject the null hypothesis of having rank 1 (rank=1) and therefore the number of cointegrating vectors is one. Optimal number of lags according for VARs and VECMs is 1. From the VECM model we can see which variable responds more if there is shock in the system, and it seems that average real wage responds more on the shock in the system.

Keywords: Granger causality, wages, prices, cointegration, VECM

JEL Classification: C50, E31

Suggested Citation

Josheski, Dushko and Bardarova, Snezana, Causal Relationship between Wages and Prices in R. Macedonia: VECM Analysis (May 21, 2013). Available at SSRN: https://ssrn.com/abstract=2268160 or http://dx.doi.org/10.2139/ssrn.2268160

Dushko Josheski (Contact Author)

University Goce Delcev ( email )

Stip
Macedonia
+389 32 550 000 (Phone)
+389 32 390 700 (Fax)

HOME PAGE: http://www.ugd.edu.mk/

Snezana Bardarova

University Goce Delcev - Faculty of Tourism and Business Logistic ( email )

Stip
Gevgelija
Macedonia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
72
Abstract Views
474
rank
356,184
PlumX Metrics