The Dynamics of the Wage-Price Setting Behaviour in Countries of Eurozone
The Dynamics of the Wage-Price Setting Behaviour in Countries of Eurozone

Summary/Abstract: The literature review clearly indicates that there are significant differences concerning analytic approaches and inferences on the dynamics, patterns, and methods applied in examining the wage-price relationship. Regardless of the fact that there have been enormous efforts invested in trying to untangle the complexities surrounding the wage-price setting process, this paper provides new and statistically robust evidence on the wage-price setting process in Germany, Spain, France, Italy, Netherlands and Austria, covering the period of time 2000:Q1–2015:Q4. The data suggests that wage setters in all the countries, except in Austria, have under-adjusted for inflation in the post 2008 period, as probably the costs of such behaviour were low. Specifically, the cointegration tests provide strong evidence in favour of hypothesis that wages and prices in the respective countries are strongly cointegrated. Moreover, the results produced by VECM models provide statistically robust evidence in favour of a long-run relationship between wages and prices. However, the price elasticity coefficients suggest that there may be a valid case in favour of fully rational wage-price setting behaviour in these countries of Eurozone.

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