Ragnar Nymoen

Pricing to Market in a Small Open Economy

The determinants of Norwegian import prices of manufactures are investigated over the period 1970(1)-1991(4). Multivariate cointegration analysis establishes a long-run relationship between import prices, foreign prices, the exchange rate, and domestic unit labor costs. Normalized on import prices, the long-run elasticities are 0.63 (foreign prices and the exchange rate) and 0.37 (domestic costs). Deviations from this relationship are highly significant in a structural import price equation, which also contains positive effects of growth in domestic demand and inflation as well as a negative effect from the Norwegian unemployment rate. The estimated parameters appear reasonably stable within the sample. Copyright 1996 by The editors of the Scandinavian Journal of Economics.

Explaining unemployment: some lessons from Nordic wage formation

Abstract Because they seemed to yield low unemployment, Nordic wage setting mechanisms and labor market policies were, in the 1980s, seen by many as examples to follow. Others ascribed the good performance to conditions on the demand side. Exploiting data also from the 1990s, we take a new look at this debate. Claims that unemployment was low because of high real wage flexibility or active labor market policy are not supported. Nor does it seem that the increase in unemployment around 1990 was caused by shifts in the wage curves. Aggregate demand explanations are not invalidated.

Testing Steady-State Implications for the NAIRU

Estimates of the NAIRU are usually derived either from a Phillips curve or from a wage curve. This paper investigates the correspondence between the operational NAIRU-concepts and the steady state of a dynamic wage-price model. We derive the parameter restrictions that secure that correspondence. The full set of restrictions can be tested by econometric analysis of the wageprice system, and this method is demonstrated for Norwegian data. A set of necessary conditions can be tested from estimated wage curves alone. Existing international evidence from empirical wage equations are re-interpreted in light of these conditions.

Wage formation in norwegian manufacturing: An empirical application of a theoretical bargaining model☆

Abstract This paper is concerned with the modelling of quarterly wage inflation in Norway. We develop a bargaining model which we believe is a sound theoretical base for econometric work in this field. Among other things, the model does not lend support to the practice of imposing Phillips-curve restrictions on the data without further test. A parsimonious model is estimated and is made subject to misspecification tests. There is no ‘natural rate of unemployment’ or ‘NAIRU’ in our model. Any constant unemployment rate is compatible with a constant rate of inflation and a real wage growth equal to the productivity growth. However, the level of the real wage path will be higher the lower is the rate of unemployment.

Measuring Structural Unemployment: NAWRU Estimates in the Nordic Countries

The non-accelerating wage rate of unemployment (NAWRU indicator), used by the OECD as a measure of structural unemployment, has risen for the four Nordic countries Denmark, Finland, Norway and Sweden. In this paper we present stable empirical wage equations for the same countries over the period 1964-1994, in sharp contrast to the increased NAWRU estimates. The instability of the NAWRU estimates is an artefact of a misspecified underlying wage equation, and not due to instability in wage setting itself.

Equilibrium-correction vs. differencing in macroeconometric forecasting

Abstract Recent work by Clements and Hendry elucidate why forecasting systems that are in terms of differences, dVARs, can be more accurate than econometric models that include levels variables, EqCMs. For example, dVAR forecasts are in some cases insulated from parameter non-constancies in the long run mean of the cointegration relationships. In this paper, the practical relevance of these issues are investigated for RIMINI, the quarterly macroeconometric model used in Norges Bank (Central Bank of Norway), an example of an EqCM forecasting model. We develop two dVAR versions of the full RIMINI model and compare EqCM and dVAR forecasts for the period 1992.1–1994.4. We also include forecasts from univariate dVAR type models. The results seem to confirm the relevance of the theoretical results. First, dVAR forecasts appear to provide some immunity against parameter non-constancies that could seriously bias the EqCM forecasts. Second, the misspecification resulting from omitting levels information generates substantial biases in the dVAR forecasts 8 and 12 quarters ahead.

Unemployment and the open economy wage‐price spiral

We present a dynamic model of real wages in the open economy that encapsulates the well‐known “competing claims model” or “incomplete competition model” of real wage determination. In general, the model determines the development of inflation, real wages and the real exchange rate for any given rate of unemployment. Inflation, rather than unemployment, is the “conflict solver” in the unrestricted model. However, a supply side determined equilibrium rate of unemployment is subsumed as a special case. A re‐appraisal of the empirical literature shows that there is little evidence in support of the “natural rate” restrictions.

Wages and the Length of the Working Day. An Empirical Test Based on Norwegian Quarterly Manufacturing Data

A simple framework is specified which is suitable for testing the relationship between the length of the working day and wages per hour. The relationship is tested on Norwegian manufacturing data, using both dynamic modeling and cointegration techniques. Both methods provide empirical support for a hypothesis of long-run independence of real wages and hours, conditional on constant productivity and unemployment. The results from dynamic modeling confirm that there are significant short-run effects of changes in normal hours, corresponding to the income-compensation schemes usually introduced along with reduction in the length of the working day. Copyright 1989 by The editors of the Scandinavian Journal of Economics.

The New Keynesian Phillips Curve Tested on OECD Panel Data

Gali, Gertler and Lopez-Salido (2005), GGL, assert that the hybrid New Keynesian Phillips curve, NPC, is robust to different choices of estimation procedure and so some forms of specification bias. Specifically, the dominance of forward-looking behavior is robust according to GGL. We assess the NPC on a panel data set from OECD countries and find that the forward rate of inflation dominates also on the panel data set. However, when variables consistent with alternative inflation models are introduced in the models, the forward term is no longer significant. Such an outcome is predicted by the incomplete competition model of inflation, ICM, meaning that the ICM encompasses the NPC. The opposite does not apply. The non-robustness of the OECD panel data NPC is in alignment with a previous encompassing test on euro-area data, as well as tests on data from the UK and from Norway. GGL on their part do not test the robustness of the NPC features with respect to existing inflation models.

Finnish manufacturing wages 1960-1987: Real-wage flexibility and hysteresis

Abstract We show that when real-wage flexibility is defined in terms of cointegration of the product real-wage and productivity, the wage formation system in Finnish manufacturing maintains considerable real-wage flexibility. We develop an empirical error- correction model of wages and show that the responsiveness of wages to changes in unemployment is much less important in explaining real-wage flexibility than existing studies suggest. For example, we find hysteresis effects, which are usually associated with real-wage rigidity rather than flexibility. This puzzle is resolved by pointing out that theoretically hysterisis is only a necessary condition for rigidity. Empirically, strong equilibrating mechanisms, including labor market policies, have induced considerable wage flexibility even in the presence of hysteresis. Our conclusions are substantiated by tests of parameter invariance and encompassing.