Wages and indirect labour costs in Western industrialized countries

All Western industrialized countries have been passing through the same economic sequence since 1970: a boom followed by a recession which in turn gave way to a slow recovery. Economic and social policy focuses everywhere on the fight against inflation and unemployment. The success or failure of these efforts is reflected by the wage levels which are one of the most important economic efficiency indicators. The following article provides an international survey¹.     

Monetary policy and commodity price shocks

Against the background of the dramatic changes in the prices of oil and other raw materials in the recent past, this paper analyses the effects of commodity price shocks in a New Keynesian model. The focus is on the central bank’s choice of inflation target and the degree of real wage rigidity. It turns out that using core inflation rather than headline inflation is the superior strategy. Targeting expected headline inflation, as practised by most central banks, is a viable practical alternative to the core inflation target.     

The Interrelationship Between Macroeconomic Variables and Stock Prices-The Case of China

ABSTRACT

Prior studies of industrialized countries have found that a definite relationship exists between the stock market returns and macroeconomic variables such as inflation and real output. This paper investigates the effects of changes in the consumer price index on industrial production and stock market returns for China. Six different types of Chinese shares are examined for the period 1994–1998. The results show a very significant positive relationship between inflation and real output. A positive and significant association is found between stock returns and real output in current periods. Inflation seems to have no impact on Chinese real stock returns. These relationships all hold for “B” shares, “H” shares and red chips. China's “A” share returns seem not to be impacted by either changes in domestic inflation or real industrial production.     

The macroeconomic effects of commodity market disruptions in open economies

This paper analyzes the macroeconomic effects of two of the principal causes of the commodity price boom in 1973-74: bad harvests and commodity speculation. The analysis uses a dynamic, fixprice-flexprice model in which exchange rates are flexible and commodities serve as both an asset and a consumption good. Commodity market disruptions of the magnitude that occurred in 1973-74 are shown to have significant effects on prices, exchange rates, trade flows, and capital flows — effects that persist long after the initial shock has passed. Asset markets, defined to include commodity markets, play a central role in transmitting these shocks throughout the world economy.     

Lohnimpulse und Wirtschaftswachstum — eine Simulationsanalyse für die Eurozone

Since the global financial and economic crisis, the question has arisen whether a policy of wage restraint could lead the European crisis countries back onto a more stable growth path. Using simulation calculations for varying wage setting strategies in Europe through 2030, the advantages and disadvantages of such a scenario can be discussed. One of the main findings is that temporary wage restraint in the economically weak countries only works as a means to regaining competitiveness if accompanied by other economic policies at the European level. These policies include higher wage growth in the economically stronger countries, transfer payments to foster investments and the acceptance of higher inflation rates in the eurozone.     

Competitiveness of developing and state trading countries

The foreign trade policies of the industrialized countries have become increasingly complex. The states in question do not apply uniform policies to all other countries but operate different arrangements for different groups of countries. The divergencies can be easily adduced as evidence in support of charges of discrimination against one group of countries for the benefit of another group. The state trading countries for instance claim—in partial explanation of their relatively small export achievements—that the foreign trade policy of the industrialized western countries puts them at a disadvantage compared with the developing countries. Is this charge justified? The following study answers this question for the EC which is the most important market for both these groups of countries in the industrialized world.     

Boom and Bust in Power Plant Construction: Lessons from the California Electricity Crisis

This article argues that competitive electricity markets are prone to the same cycles of boom and bust that appear in commodity markets and in a specialized industry like real estate. The article then demonstrates how boom and bust might appear in the western electricity system using computer simulation. A “business as usual” simulation shows that the west might be at the crest of a building boom and on the verge of a bust in wholesale prices. Without fundamental changes in the wholesale markets, the next construction boom would come too late to prevent a decline in reserve margins and the reappearance of price spikes. If we continue with the current market structure, we run the risk of exposing the western electricity markets to another round of reliability alerts and price spikes. The article concludes with suggestions for alternative market structures in California and a discussion of whether these suggestions apply to other countries engaged in electricity restructuring.     

Wages and foreign ownership A comparative study of Mexico, Venezuela, and the United States

This paper explores the relationship between wages and foreign investment in Mexico, Venezuela, and the United States. Despite very different economic conditions and levels of development, we find one fact that is robust across all three countries: higher levels of foreign investment are associated with higher wages. However, in Mexico and Venezuela, foreign investment is associated with higher wages only for foreign-owned firms — there is no evidence of wage spillovers leading to higher wages for domestic firms. The lack of spillovers in Mexico and Venezuela is consistent with significant wage differentials between foreign and domestic enterprises. In the United States, where the evidence suggests some wage spillovers from foreign to domestic enterprises, wage differentials are smaller.     

TESTING WAGE AND PRICE PHILLIPS CURVES FOR THE UNITED STATES

This paper demonstrates how the labour and product markets interact in determining as outcome a generalized reduced‐form price Phillips curve. For the labour market we consider a wage Phillips curve and for the product market a price Phillips curve. We estimate separately the wage and price Phillips curves for the USA, using ordinary least squares, non‐parametric estimation and three‐stage least squares techniques. The finding is that wages are always more flexible than prices with respect to their respective demand pressure and that price inflation responds somewhat more to a medium‐run cost pressure than does wage inflation. The implications for macroeconomic stability are demonstrated. We also show—as a link between product and labour markets—that employment is related to output as Okun's law states. In comparing linear and non‐linear estimates of the wage and price Phillips curves we find furthermore that for some relationships non‐linearities are important while not for others. Although overall the non‐linear estimates tend to confirm our linear estimates, non‐linearities in some relationships of the Phillips curve are important as well.     

Commodity windfalls,polarization, and net foreign assets: Panel data evidence on the voracity effect

This paper examines the effects that windfalls from international commodity price booms have on net foreign assets in a panel of 145 countries during the period 1970–2007. The main finding is that windfalls from international commodity price booms lead to a significant increase in net foreign assets, but only in countries that are ethnically homogeneous. In highly ethnically polarized countries, net foreign assets significantly decreased. To explain this asymmetry, the paper shows that in ethnically polarized countries commodity windfalls lead to large increases in government consumption expenditures and political corruption. The paper's findings are consistent with theoretical models of the current account that have a built-in voracity effect.     

Possible effects of the Common Fund

After five years of tough negotiations at numerous conferences about an integrated Programme for Commodities (IPC) the participating countries agreed in March 1979 on basic and operational regulations for the key instrument of this programme, a Common Fund. In its present version it is closely related to the ideas of the “hard-liners” among the industrialized states and—what is most important—seems incapable of contributing significantly to a solution of the global investment, diversification and price stabilization problems in the commodity sector.     

The Political Effects of Ageing on Inflation

Why do different countries exhibit different inflation rates? Most political economy accounts emphasise the role of ideas and institutions: as economic research shows that low inflation is achievable at no economic cost, governments delegate monetary policy to independent central banks. Countries with independent central banks and unions that anticipate the consequences of their actions by coordinating wage bargaining in turn achieve lower inflation. This conventional wisdom downplays the importance of interests, ignoring the significant influence that a growing electoral group — the elderly — has on inflation. Because the elderly are politically powerful and inflation averse, countries with more elderly citizens force political parties to adopt more economically orthodox policies when in power, resulting in lower inflation rates in those countries. Ageing populations may therefore lock in a low inflation regime, even when this is not economically desirable.     

对通货膨胀进行测度的价格指数研究

本文运用我国现行编制的各类价格指数，对我国的通货膨胀状况进行了分析，将我国测度通货膨胀的指标分为两类；并指出用居民消费价格指数和商品零售价格指数作为测度我国通货膨胀指标的局限性。     

Why more stable prices than abroad?

In many of the western industrialized countries the rate of inflation — high as it was — almost doubled between 1973 and 1974 whilst in the Federal Republic it did not escalate any further, the oil price explosion notwithstanding. Are the basic economic and social conditions in the Federal Republic more conducive to stability than elsewhere?     

Managing an Economy Under EMU: The Case of Ireland

Ireland's experience of limited monetary independence within the EMS indicated that such independence was bought at the price of significant risk premia on interest rates. This experience informed its decision to join EMU, and membership has resulted in the expected credibility gain. Since the start of EMU inflation in consumer prices in Ireland has risen well above the EU average. However, this need not be a matter of concern within a monetary union. Instead, what should concern the Irish administration is a high rate of inflation in wage rates and domestic asset prices chiefly housing. While monetary policy is no longer available as an instrument of domestic policy, fiscal policy can still be used to effectively target these problems. The lessons of the first three years of membership is that the focus of fiscal policy within Ireland needs to change, and that the EU institutions also need to focus more clearly on the needs of the Euro area rather than on those of individual regional economies.     

The asymmetric effects of exchange rate fluctuations on output and prices: Evidence from developing countries

This paper examines the asymmetric effects of exchange rate fluctuations on real output and price in developing countries. The theoretical model decomposes movements in the exchange rate into anticipated and unanticipated components. Unanticipated currency fluctuations determine aggregate demand through exports, imports and the demand for domestic currency, and determine aggregate supply through the cost of imported intermediate goods. The evidence indicates that the supply channel leads to output contraction and price inflation in the face of unanticipated currency depreciation. In contrast, the reduction in net exports determines output contraction without reducing price inflation in the face of unanticipated currency appreciation.     

国际大米市场价格波动对国内市场的传递效应——基于误差修正模型的估计

基于2006年2月—2011年3月的月度数据,对国际大米价格波动与中国国内大米价格波动的长期均衡关系进行检验,分析国内大米价格波动的主要影响因素及其程度,考察国内外大米市场价格波动的时滞效应与调整效应,并从外贸途径和期货途径测度国外大米价格波动对国内大米价格波动的传导效应,基本结论是:国际大米价格波动与国内大米价格波动存在长期稳定的均衡关系,长期内国内大米价格波动主要由通货膨胀带动,且价格传递具有明显的时滞效应和调节效应。脉冲响应函数和方差分解方法实证结果表明,国际大米价格通过外贸渠道和期货渠道对国内大米价格产生影响,其中期货途径对国内大米价格波动的传导效应更显著。     

Are Imports and Exports Cointegrated? An International Comparison

In this paper we use the Johansen and Juselius cointegration technique to examine the long‐run convergence between imports and exports for a number of industrialized countries. The results indicate that there exists a long‐run steady‐state relationship between imports and exports for most countries in the sample. The policy implications of our findings are that the countries are not in violation of their international budget constraints and, more importantly, there is no productivity gap between the domestic economy and the rest of the world, implying a lack of permanent technological shocks to the domestic economy.     

Growth,foreign investment,and the real-income gap between source and host countries

This article studies how endowment changes affect the real-income gap between source and host countries in a world where some factors are internationally mobile. Emphasis is given to endowment changes of equal magnitudes in both countries. For example, in a benchmark situation where the two countries are equivalent except in their relative endowments of mobile capital versus immobile labor, internationally balanced labor growth (1) raises the world price of the mobile factor, (2) increases host-to-source remitted earnings, and (3) widens the source-versus-host real-income gap. Tendencies such as these, however, must be treated with care. The world price of the mobile factor could fall if there are more than two factors. Overall remitted earnings could also fall if the source country imports one or more mobile factor. Furthermore, an increase in remitted earnings may fail to increase the real-income gap if there are offsetting effects on product prices or domestic products.     

Exchange market pressure,commodity prices,and contagion in Latin America

Over the past two decades, Latin American currencies have faced not only pressure to devalue but also periods of uncomfortable appreciation. Domestic macroeconomic factors, as well as global events and contagion, might bear part of the responsibility. This study constructs a monthly index of exchange market pressure (EMP) for four Latin American countries before using vector autoregressive methods to test the influence of commodity prices, macroeconomic variables, and external factors on each country's index. While inflation is an important determinant of EMP, we conclude that Chile and Peru are more likely than Mexico and Brazil to face pressure when commodity prices fall. This supports the idea that these two countries have “commodity currencies” and that their exchange markets are most vulnerable to international contagion.