Abstract
In Chapter 4, Section 4.4, a two-equation wage-price model is discussed which extends the single-equation models of the preceding sections, in which wage change is shown to be a function of price change and unemployment, to suggest that wage changes also contribute towards price changes so that prices and wages become jointly dependent. This reflects a belief that although it seems plausible to regard the general price level to be an important influence on wage rates whether at the micro- or macro-level, it also seems likely that the average wage rate at the macro-level has in turn a bearing on the general price level. Another instance of a joint dependence between variables which is associated with a transition from the level of micro-economic units to that of a macro-economy is found in the familiar notion that while aggregate consumption may be influenced by aggregate income the latter is also determined by total expenditure of which expenditure on consumption is an important part. It should be emphasised, however, that these examples of simultaneity are made necessary by aggregation over time as much as by aggregation over economic units. Thus, although it could be said that there must be finite lags between expenditure and its impact on incomes and between a wage change and its impact on price, while income has usually to be received before it can be spent and new wage rates often take time to negotiate, these lags are blurred, if they are not lost altogether, in the kind of data which are usually available in practice, much of which are available at best only quarterly.
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© 1974 R. F. Wynn and K. Holden
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Wynn, R.F., Holden, K. (1974). Macro-economic Models I: The Specification Problem and Related Issues. In: An Introduction to Applied Econometric Analysis. Palgrave, London. https://doi.org/10.1007/978-1-349-15548-4_5
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DOI: https://doi.org/10.1007/978-1-349-15548-4_5
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