Dag Olav Kolsrud and Ragnar Nymoen
A standard model of equilibrium unemployment consists of static equations for real-wage ambitions (wage curve) and real-wage scope (price curve), which jointly determine the…
Abstract
Purpose
A standard model of equilibrium unemployment consists of static equations for real-wage ambitions (wage curve) and real-wage scope (price curve), which jointly determine the NAIRU. The heuristics of the model states that unless the rate of unemployment approaches the NAIRU from any given initial value, inflation will be increasing or decreasing over time. The paper aims to discuss these issues.
Design/methodology/approach
The authors formalize this influential heuristic argument with the aid of a dynamic model of the wage-price spiral where the static theory’s equations are re-interpreted as attractor relationships.
Findings
The authors show that NAIRU unemployment dynamics are sufficient but not necessary for inflation stabilization, and that the dynamic wage-price spiral model generally has a dynamically stable solution for any predetermined rate of unemployment. The authors also discuss a restricted version of the model that conforms to the accelerationist view that inflation increases/falls if unemployment is not at its “natural rate”.
Research limitations/implications
To investigate the relevance of heuristical dynamics of influential macro models, explicit modelling of such dynamics is a necessary step.
Practical implications
An important argument against social orders that represent an attempt to target unemployment at relatively low levels, is refuted by the analysis.
Social implications
A high degree of employment is a main premise for a social order with equal income distribution and a drive for productivity growth.
Originality/value
It is important that economics give a balanced view of the possibility of attaining inflation stability at low or moderate levels of unemployment. This offering is contributions to establish such a balance.
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We present a dynamic model of real wages in the open economy that encapsulates the well‐known “competing claims model” or “incomplete competition model” of real wage…
Abstract
We present a dynamic model of real wages in the open economy that encapsulates the well‐known “competing claims model” or “incomplete competition model” of real wage determination. In general, the model determines the development of inflation, real wages and the real exchange rate for any given rate of unemployment. Inflation, rather than unemployment, is the “conflict solver” in the unrestricted model. However, a supply side determined equilibrium rate of unemployment is subsumed as a special case. A re‐appraisal of the empirical literature shows that there is little evidence in support of the “natural rate” restrictions.
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The influx of migrant workers from Central and Eastern Europe over the last decade represents the largest migratory flows to Norway in history and an unprecedented supply shock to…
Abstract
The influx of migrant workers from Central and Eastern Europe over the last decade represents the largest migratory flows to Norway in history and an unprecedented supply shock to parts of the Norwegian labour market. This article reviews existing research and summarises the findings in terms of (1) the volume, direction and temporal patterns of migration flows; (2) the economic integration of new labour migrants; (3) the impacts of labour migration on wages, employment, skills, and social organisation of work in affected industries and (4) the political and institutional responses to rising labour migration. The article concludes by discussing the overall long-term consequences of labour migration, particularly with regard to social inequality in Norway.
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This paper investigates the empirical relationship between money, real income, interest rates, inflation and expected exchange rate, and examines the constancy of this…
Abstract
This paper investigates the empirical relationship between money, real income, interest rates, inflation and expected exchange rate, and examines the constancy of this relationship, especially in the light of financial reform, deregulation of financial markets and financial crises in Turkey. The estimation results show that expected exchange rate is statistically significant in the money demand function, indicating existence of currency substitution in Turkey. The dynamics of money demand is important, the inflation and income effects are much smaller in the short‐run than long‐run. The results also reveal that the demand for money in Turkey is stable, despite the economic reforms and financial crises.