Do real wages respond asymmetrically to unemployment shocks? Evidence from the U.S. and Canada

Article Abstract:

Using a set of cointegration and error correction models with asymmetric adjustment, this paper investigates aggregate labor market adjustment in the U.S. and Canada in the post 1973 period. Empirical results show real wages, productivity, and unemployment are cointegrated. Adjustment toward the long-run equilibrium seems to be linear for the U.S. and non-linear for Canada. The dynamic adjustment of real wages to unemployment and productivity shocks show markedly different responses to positive shocks than negative shocks in Canada. However, adjustment in the U.S. is mostly symmetric. This difference between the U.S. and Canadian real wage responses may provide an answer to the recent divergence of unemployment rates between the U.S. and Canada.

Canada

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Testing an augmented fisher hypothesis for a small open economy: The case of Finland

Article Abstract:

We augment the famous Fisher hypothesis for a small open economy by introducing foreign interest rate and exchange variables to the traditional test equation of the hypothesis. Using the Johansen cointegration method for the Finnish money market interest rate data we find that it is possible to find a positive long-run relationship between nominal interest rates and inflation. We also find that for a small open economy, like Finland, the effects from the corresponding markets of its main foreign trade partners are important when analyzing single macroeconomic hypotheses, like the Fisher hypothesis.

Finland

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Real disturbances, relative prices and purchasing power parity

Article Abstract:

A modified version of the purchasing power parity (PPP) is examined using cointegration/error-correction methods and data from the post Bretton Woods period. It is shown that international differences in productivity, government spending and real oil price shocks lead to deviations from PPP. It is also argued that real shocks essential to determining equilibrium dollar values should be considered in macroeconomic policy instruments.

Analysis, Purchasing power

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