Type

Report

Authors

Martina Lawless
Karl Whelan

Subjects

Economics

Topics
e31 sectoral data phillips curve labour market inflation finance mathematical models labour share euro area labor market europe

Understanding the dynamics of labor shares and inflation (2007)

Abstract Calvo-style models of nominal rigidities currently provide the dominant paradigm for understanding the linkages between wage and price dynamics. Recent empirical implementations stress the idea that these models link inflation to the behavior of the labour share of income. GalĂ­, Gertler, and Lopez-Salido (2001) argue that the model explains the combination of declining inflation and labour shares in Euro area. In this paper, we show that with realistic parameters, the canonical Calvo-style model cannot explain this outcome. In addition, we show that the model fails very badly in sectoral data. We examine the elements underlying the decline in the labour share in Europe, and conclude that the key factors are related to technological and labour market developments not accounted for in the standard New-Keynesian framework.
Collections Ireland -> University College Dublin -> School of Economics
Ireland -> University College Dublin -> College of Social Sciences and Law
Ireland -> University College Dublin -> Economics Research Collection

Full list of authors on original publication

Martina Lawless, Karl Whelan

Experts in our system

1
Karl Whelan
University College Dublin
Total Publications: 69