## The wage-price model

We first model the long-run equilibrium equations for wages and prices based on the framework of Chapter 5. As we established in Section 5.4 the long-run equations of that model can be derived as a particular identification scheme for the cointegrating equations; see (5.19)-(5.20). Second, we incorporate those long-run equations as equilibrium correcting terms in a dynamic two-equation simultaneous core model for (changes in) wages and prices.

9.2.1 Modelling the steady state

From equations (5.19)-(5.20), the variables that contain the long-run real wage claims equations are collected in the vector [wt pt at pit ut]’. The wage variable wt is average hourly wages in the mainland economy, excluding the oil producing sector and international shipping...

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