Inflation Expectations and the Structural Shift in Aggregate Labor-Cost Determination in the 1980s / David Neumark, Jonathan S. Leonard.

Format:

Book

Author/Creator:

Neumark, David.

Contributor:

National Bureau of Economic Research.

Leonard, Jonathan S.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4018.

NBER working paper series no. w4018

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1992.

Summary:

Aggregate labor cost equations tended to overpredict labor-cost inflation in the United States in the 1980s. We consider the hypothesis that a change in the price-inflation-expectations mechanism can explain this apparent structural shift in the 1980s. We examine whether the sharp recession of the early 1980s and continued tight monetary policy throughout the decade may have led to changes in the relationship between past price inflation and expected price inflation such that distributed lags of price inflation persistently overestimated expected price inflation, and hence led to overprediction of labor-cost inflation by standard Phillips curves in this period. The evidence leads us to reject this hypothesis, and to conclude instead that there was a true structural shift in labor cost determination.

Notes:

Print version record

March 1992.