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

By:

Neumark, David

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w4018.Publication details: Cambridge, Mass. National Bureau of Economic Research 1992.Description: 1 online resource: illustrations (black and white)Subject(s):

E - Macroeconomics and Monetary Economics

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Abstract: 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.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w4018 (Browse shelf(Opens below))	Not For Loan

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March 1992.

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.