Price-Wage Spiral in Iran

Document Type : Research Article

Authors

bu ali sina university

Abstract

This paper explores the interrelationship between price and nominal wage during the period of Fiscal Year 1997-78 to Fiscal Year 2012-13. An ARDL bound testing approach suggested by Pesaran et al. (2001) is employed to investigate the short-run dynamics and long-run relationship between consumer price index (CPI) and nominal wage rate, while accounting for the underlying macro determinants of price inflation, namely, the bilateral (Rial/US dollar) nominal exchange rate, credit (banks and financial institutions sectors) and real gross domestic product (GDP). The results show that the nominal exchange rate, the nominal wage rate and credit a positive relation with the price level both in the short-run and in the long run. And real GDP is negatively related to price. Granger causality test results also show that indirect causal relationship between nominal wage rate one-way price in the short term and the long-run. So there's wage price spiral be rejected. The results showed that long-term real GDP and exchange rates (balance of payments view) is the most important for the stability of the price level.

Keywords

References

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Journal of Applied Economics Studies in Iran
Volume 5, Issue 17
April 2016
Pages 151-169

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