A Phillips curve interpretation of error-correction models of the wage and price dynamics

This paper presents a model of employment, distribution andinflation in which a modern error correction specification ofthe nominal wage and price dynamics (referring to claims onincome by workers and firms) occupies a prominent role. It isbrought out, explicitly, how this rather typical error-correctionsetting, which actually seems to capture the wage and pricedynamics of many large-scale econometric models quite well,is fully compatible with the notion of an old-fashioned Phillipscurve with finite slope. It is shown how the steady-state impactof various shocks to the model can be profitably conceived ofand interpreted in terms of (and to some extent even calculatedby means of) this long-run Phillips curve.