Cost of Living Adjustment and Business Cycles: Disaggregated Evidence

Author/Editor:

Magda E. Kandil

Publication Date:

July 1, 2000

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

For a sample of US industries, nominal wage and price inflation follow aggregate price inflation closely during economic expansions. Hence, fluctuations in profit markup and real output are moderate in the face of expansionary demand shocks. During recessions, however, industrial nominal wage deflation exceeds that of the aggregate price level. This is in contras to producers’ attempt to maintain, or even increase, industrial real price inflation during recessions. Consistently, the increase in the profit markup is correlated with an increase in output contraction and a reduction in workers’ real standard of living during recessions.

Series:

Working Paper No. 2000/124

Subject:

Business cycles Cost of living Economic growth Inflation Labor Prices Real wages Wage indexation Wages

English

Publication Date:

July 1, 2000

ISBN/ISSN:

9781451854718/1018-5941

Stock No:

WPIEA1242000

Pages:

42

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