Wages and inflation in Mexican manufacturing
A two-period comparison: 1994-2003 and 2007-2016
DOI:
https://doi.org/10.24275/uam/azc/dcsh/ae/2021v36n93/CarbajalPalabras clave:
wages, consumer price inflation, producer price inflationResumen
The effect of wages on price inflation has been a foremost subject in economics. This paper evaluates the effect in Mexican manufacturing for two sets of periods. The first one, from 1994 to 2003, covers an initial period of the North American Free Trade Agreement (NAFTA). The second period encompass from 2007 to 2016, comprising the Great Recession. For both periods, data is available on a monthly frequency. A first equation deals with wages and bilateral nominal exchange rate impacts on the producer price inflation. A second equation measures the effect of this last variable, besides a bilateral nominal exchange rate and the wage effect on consumer price inflation. These equations follow Pujol and Griffiths (1997), using an error correction model and Granger causality tests. The results for the mentioned periods expose those wages have an almost null effect in both the inflation of producer and consumer prices.
JEL Classification: J00; J3.
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Banco de México. (2021). Series históricas. Retrieved at http://www.banxico.org.mx
Blanchard, O. (1993). Macroeconomics, New York: McGraw-Hill.
Burstein, A., Eichenbaum, M., and Rebelo, S. (2005). Large Devaluations and the Real Exchange Rate. Journal of Political Economy, Vol. 113, no. 4. Pp. 742-784. https://doi.org/10.1086/431254
Cantore, C., León-Ledesma, M., and Ferroni, F. (2021). The Missing Link: Monetary Policy and the Labor Share. Journal of the European Economic Association, Vol. 19 (3), pp. 1592-1620. https://doi.org/10.1093/jeea/jvaa034
Carbajal-De-Nova, C. (2003). Salarios e Inflación. El Caso de la Manufactura en México, Master thesis. Available at: http://148.206.53.84/tesiuami/UAMI10798.pdf [Retrieved in August, 2018].
Carbajal-De-Nova, C. (2018). Money Neutrality: An Empirical Assessment for Mexico. Working paper. http://doi.org/10.13140/RG.2.2.36446.69440.
Chow, G.C. (1960). Test of Equality between Sets of Coefficients in Two Linear Equations. Econometrica, Vol. 28, No. 3, pp. 591-605. https://doi.org/10.2307/1910133.
Christiano, L.J., Eichenbaum, M., and Evans, C.L. (2005). Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy. Journal of Political Economy, Vol. 113, No. 1, pp. 1-45. https://doi.org/10.1086/426038
Clark, T.E. (1997). Do Producer Prices Help Predict Consumer Prices? Federal Reserve Bank of Kansas City Research Paper, Vol. 80 (QIII), pp. 25-39.
Coibion, O., and Gorodnichenko, Y. (2013). Is the Phillips Curve Alive and Well after All? Inflation Expectations and the Missing Disinflation. NBER Working Paper Series, (19598), pp. 1-43. https://doi.org/10.3386/w19598
Desai, M. (1975). The Phillips Curve: A Revisionist Interpretation. Economica, Vol. 42, no. 165, pp. 1-19. https://doi.org/10.2307/2552982
Dicks-Mireaux L.A., and Dow J.C.R. (1959). The Determinants of Wage Inflation; United Kingdom 1946-1956. Journal of the Royal Statistical Society, Series A, Vol. 122, no. 2, 145-184. https://doi.org/10.2307/2342602
Douc, R., Moulines, F., and Stoffer, D. (2014). Nonlinear Time Series: Theory, Methods and Applications with R Examples, Boca Raton: CRC Press. https://doi.org/10.1007/s11222-015-9575-4
Engle, R.F., and Granger, C.W. (1987). Co-Integration and Error Correction: Representation, Estimation, and Testing. Econometrica, Vol. 55, No. 2, pp. 251-276. https://doi.org/10.2307/1913236
Féve, P., and J.G. Sahuc. (2017). In Search of the Transmission Mechanism of Fiscal Policy in the Euro Area. Journal of Applied Econometrics, Vol. 32 (3), pp. 704-718. https://doi.org/10.1002/jae.2517
Friedman, M. (1956). The Quantity Theory of Money – A Restatement. (In M. Friedman, ed.) Studies in the Quantity Theory of Money, Chicago: University of Chicago Press. https://doi.org/10.1007/978-1-349-19804-7_1
Galí, J., and Gertler M. (1999). Inflation Dynamics: A Structural Econometric Analysis. Journal of Monetary Economics, Vol. 44 (2), pp. 195-222. https://doi.org/10.1016/s0304-3932(99)00023-9
Galí, J., Gertler, M. and J.D. López-Salido. (2007). Markups, Gaps, and the Welfare Costs of Business Fluctuations. Review of Economics and Statistics, 89(1), pp. 44-59. https://doi.org/10.1162/rest.89.1.44
Galí, J. (2008). Monetary Policy, Inflation and the Business Cycle: An Introduction to the New Keynesian Framework, New Haven: Princeton University Press. https://doi.org/10.1007/s00712-008-0040-0
Gil Díaz, F., and Ramos Tercero, R. (1992). Lecciones desde México (in M. Bruno, Di Tella, Dornbusch R. and S. Fisher, eds.) inflación y estabilización. La Experiencia de Israel, Argentina, Brasil, Bolivia y México. México: Fondo de Cultura Económica.
Hall, R., and Taylor, M. (1989). Macroeconomía. México: Iberoamericana.
Hess, G., and Schweitzer, M. (2000). Does Wage Inflation Cause Price Inflation? Federal Reserve Bank of Cleveland Policy Discussion Paper, No. 10. https://doi.org/10.2139/ssrn.1025464
Hendry, D.F., and Wallis, K.F. (1984). Econometrics and Quantitative Economics, New York: Basil Blackwell.
Henry, S.G.B., and Ormerod, P.A. (1978). Incomes Policy and Wage Inflation: Empirical Evidence for the UK 1961-1977. National Institute Economic Review, Vol. 85, pp. 31-39. https://doi.org/10.1177/002795017808500106
Hickman, B.G., and Klein, L.R. (1984). Wage-Price Behavior in the National Models of Project LINK. The American Economic Review, Vol. 74, No. 2, pp. 150-154.
Hogan, V. (1998), Explaining the Recent Behavior of Inflation and Unemployment in the United States. IMF Working Paper, 98/145, pp. 1-17. https://doi.org/10.5089/9781451856514.001
Instituto Nacional de Estadística y Geografía. (2021). Banco de información en línea. Retrieved at http://www.inegi.org.mx/sistemas/bie/INEGI
Johansen, S. (1988). Statistical Analysis of Cointegration Vectors. Journal of Economic Dynamics and Control, Vol. 12(2-3), pp. 231-254. https://doi.org/10.1016/0165-1889(88)90041-3
Johansen, S. (1992). Cointegration in Partial Systems and the Efficiency of Single-Equation Analysis. Journal of Econometrics, Vol. 52 (3), pp. 389-402. https://doi.org/10.1016/0304-4076(92)90019-N
Johansen, S. (2004). Cointegration: An Overview. Department of Applied Mathematics and Statistics, University of Copenhagen. Available at:http://web.math.ku.dk/~susanne/Klimamode/OverviewCointegration.pdf [Retrieved in August, 2018].
Klein, L.R., Ball, R.J., Hazlewood, A., and Vandome P. (1961). An Econometric Model of the United Kingdom, Oxford: Basil Blackwell.
Lipsey, R.G., and Steuer M.D. (1961). Relations between Profits and Wage Rates, Economica, Vol. 28 (110), pp. 137-155. https://doi.org/10.2307/2551519.
Lucas, J.R.E. (1972). Expectations and the Neutrality of Money. Journal of Economic Theory, Vol. 4(2), pp. 103-124. https://doi.org/10.1016/0022-0531(72)90142-1.
Lucas, J.R.E. (1996). Nobel Lecture: Monetary Neutrality. Journal of Political Economy, Vol. 104 (4), pp. 661-682. https://doi.org/10.1086/262037
Mankiw, N.G. (2015). Principles of Economics, Kuala Lumpur: Cengage Learning.
Mehra, Y. (1993). Unit Labor Costs and the Price Level. Federal Reserve Bank of Richmond Economic Quarterly, Vol.79 (4), pp. 35-51.
Melnick, R., and Strohsal, T. (2017). Disinflation in Steps and the Phillips Curve: Israel 1986-2015. Journal of Macroeconomics, Vol. 53, Issue C, September, pp. 145-161. https://doi.org/10.1016/j.jmacro.2017.06.008
Merton, H.M., and Upton, C.W. (1986). Macroeconomics: A Neoclassical Introduction, Chicago: University of Chicago Press.
Onaran, Ō., Stockhammer, E. and Grafl, L. (2011). Financialization, Income Distribution and Aggregate Demand. Cambridge Journal of Economics, 35 (4), pp. 637-661. https://doi.org/10.1093/cje/beq045
Onaran, Ō., and Galanis, G. (2014). Income Distribution and Growth: A Global Model. Environment and Planning A: Economy and Space, Vol. 46 (10), pp. 2489-2513. https://doi.org/10.1068/a46265
Onaran, Ō., and Obst, T. (2015). Wage-led Growth in the EU15 Member States: The Effects of Income Distribution on Growth, Investment, Trade Balance, and Inflation. Greenwich Papers in Political Economy, GPERC28, pp. 1-50. https://doi.org/10.1093/cje/bew009
Phillips, A.W. (1958). The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957. Economica, Vol. 25 (100), 283-300. https://doi.org/10.1111/j.1468-0335.1958.tb00003.x
Pujol, T., and Griffiths, M. (1997). Moderate Inflation in Poland: A Real Story. (In C. Cottarelli and G. Szapáry eds.) Moderate Inflation. The Experience of Transition Economies, Washington D.C: International Monetary Fund. https://doi.org/10.1006/jcec.1999.1591
Rissman, E. (1995). Sectoral Wage Growth and Inflation. Federal Reserve Bank of Chicago Economic Perspectives. Vol. 19, No. 4, pp. 16-28.
Romer, D. (2001). Advanced Macroeconomics, Nueva York: McGraw-Hill.
Rotemberg, J. (1987). The New Keynesian Microfoundations. In S. Fischer ed., NBER Macroeconomics Annual 1987, Vol. 2 Cambridge, Massachusetts: The MIT Press. https://doi.org/10.1086/ma.2.4623707
Samuelson, P. (1994). Facets of Balassa-Samuelson Thirty Years Later. Journal of International Economics, Vol. 2 (3), pp. 201-226. https://doi.org/10.1111/j.1467-9396.1994.tb00041.x
Sargan, J.D. (1964). Wages and Prices in the United Kingdom: A Study in Econometric Methodology. (In P.E. Hart, G. Mills and J.K. Whittaker, eds.) Econometric Analysis for National Economic Planning, London: Butterworth.
Sargan, J.D. (1984). Published works of J.D. Sargan. (In David F. Hendry and Kenneth F. Wallis, eds.) Econometrics and Quantitative Economics, New York: Blackwell.
Spanos, A. (1995). On Theory Testing in Econometrics: Modeling with Non-experimental Data. Journal of Econometrics, Vol. 67 (1), pp. 189-226. https://doi.org/10.1016/0304-4076(94)01633-B
Stigler, G.J. (1966). The Theory of Price, New York: Macmillan.
Stockhammer, E., Onaran, Ō., and Ederer, S. (2009). Functional Income Distribution and Aggregate Demand in the Euro Area. Cambridge Journal of Economics, Vol. 33(1), pp. 139-159. https://doi.org/10.1093/cje/ben026
Uhlig, H. (2005). What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure. Journal of Monetary Economics, 52, pp. 381-419. https://doi.org/10.1016/j.jmoneco.2004.05.007
Varian, H.R. (1999). Intermediate Microeconomics. A Modern Approach, New York: Norton.
Wallis, K.F. (1979). Econometric Implications of the Rational Expectations Hypothesis. Econometrica, Vol. 48 (1), pp. 40-73. https://doi.org/10.2307/1912018
Woodford, M. (2003). Interest and Prices: Foundations of a Theory of Monetary Policy, Princeton, Oxford and Beijing: Princeton University Press.
Banco de México. (2021). Series históricas. Retrieved at http://www.banxico.org.mx
Blanchard, O. (1993). Macroeconomics, New York: McGraw-Hill.
Burstein, A., Eichenbaum, M., and Rebelo, S. (2005). Large Devaluations and the Real Exchange Rate. Journal of Political Economy, Vol. 113, no. 4. Pp. 742-784. https://doi.org/10.1086/431254
Cantore, C., León-Ledesma, M., and Ferroni, F. (2021). The Missing Link: Monetary Policy and the Labor Share. Journal of the European Economic Association, Vol. 19 (3), pp. 1592-1620. https://doi.org/10.1093/jeea/jvaa034
Carbajal-De-Nova, C. (2003). Salarios e Inflación. El Caso de la Manufactura en México, Master thesis. Available at: http://148.206.53.84/tesiuami/UAMI10798.pdf [Retrieved in August, 2018].
Carbajal-De-Nova, C. (2018). Money Neutrality: An Empirical Assessment for Mexico. Working paper. http://doi.org/10.13140/RG.2.2.36446.69440.
Chow, G.C. (1960). Test of Equality between Sets of Coefficients in Two Linear Equations. Econometrica, Vol. 28, No. 3, pp. 591-605. https://doi.org/10.2307/1910133.
Christiano, L.J., Eichenbaum, M., and Evans, C.L. (2005). Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy. Journal of Political Economy, Vol. 113, No. 1, pp. 1-45. https://doi.org/10.1086/426038
Clark, T.E. (1997). Do Producer Prices Help Predict Consumer Prices? Federal Reserve Bank of Kansas City Research Paper, Vol. 80 (QIII), pp. 25-39.
Coibion, O., and Gorodnichenko, Y. (2013). Is the Phillips Curve Alive and Well after All? Inflation Expectations and the Missing Disinflation. NBER Working Paper Series, (19598), pp. 1-43. https://doi.org/10.3386/w19598
Desai, M. (1975). The Phillips Curve: A Revisionist Interpretation. Economica, Vol. 42, no. 165, pp. 1-19. https://doi.org/10.2307/2552982
Dicks-Mireaux L.A., and Dow J.C.R. (1959). The Determinants of Wage Inflation; United Kingdom 1946-1956. Journal of the Royal Statistical Society, Series A, Vol. 122, no. 2, 145-184. https://doi.org/10.2307/2342602
Douc, R., Moulines, F., and Stoffer, D. (2014). Nonlinear Time Series: Theory, Methods and Applications with R Examples, Boca Raton: CRC Press. https://doi.org/10.1007/s11222-015-9575-4
Engle, R.F., and Granger, C.W. (1987). Co-Integration and Error Correction: Representation, Estimation, and Testing. Econometrica, Vol. 55, No. 2, pp. 251-276. https://doi.org/10.2307/1913236
Féve, P., and J.G. Sahuc. (2017). In Search of the Transmission Mechanism of Fiscal Policy in the Euro Area. Journal of Applied Econometrics, Vol. 32 (3), pp. 704-718. https://doi.org/10.1002/jae.2517
Friedman, M. (1956). The Quantity Theory of Money – A Restatement. (In M. Friedman, ed.) Studies in the Quantity Theory of Money, Chicago: University of Chicago Press. https://doi.org/10.1007/978-1-349-19804-7_1
Galí, J., and Gertler M. (1999). Inflation Dynamics: A Structural Econometric Analysis. Journal of Monetary Economics, Vol. 44 (2), pp. 195-222. https://doi.org/10.1016/s0304-3932(99)00023-9
Galí, J., Gertler, M. and J.D. López-Salido. (2007). Markups, Gaps, and the Welfare Costs of Business Fluctuations. Review of Economics and Statistics, 89(1), pp. 44-59. https://doi.org/10.1162/rest.89.1.44
Galí, J. (2008). Monetary Policy, Inflation and the Business Cycle: An Introduction to the New Keynesian Framework, New Haven: Princeton University Press. https://doi.org/10.1007/s00712-008-0040-0
Gil Díaz, F., and Ramos Tercero, R. (1992). Lecciones desde México (in M. Bruno, Di Tella, Dornbusch R. and S. Fisher, eds.) inflación y estabilización. La Experiencia de Israel, Argentina, Brasil, Bolivia y México. México: Fondo de Cultura Económica.
Hall, R., and Taylor, M. (1989). Macroeconomía. México: Iberoamericana.
Hess, G., and Schweitzer, M. (2000). Does Wage Inflation Cause Price Inflation? Federal Reserve Bank of Cleveland Policy Discussion Paper, No. 10. https://doi.org/10.2139/ssrn.1025464
Hendry, D.F., and Wallis, K.F. (1984). Econometrics and Quantitative Economics, New York: Basil Blackwell.
Henry, S.G.B., and Ormerod, P.A. (1978). Incomes Policy and Wage Inflation: Empirical Evidence for the UK 1961-1977. National Institute Economic Review, Vol. 85, pp. 31-39. https://doi.org/10.1177/002795017808500106
Hickman, B.G., and Klein, L.R. (1984). Wage-Price Behavior in the National Models of Project LINK. The American Economic Review, Vol. 74, No. 2, pp. 150-154.
Hogan, V. (1998), Explaining the Recent Behavior of Inflation and Unemployment in the United States. IMF Working Paper, 98/145, pp. 1-17. https://doi.org/10.5089/9781451856514.001
Instituto Nacional de Estadística y Geografía. (2021). Banco de información en línea. Retrieved at http://www.inegi.org.mx/sistemas/bie/INEGI
Johansen, S. (1988). Statistical Analysis of Cointegration Vectors. Journal of Economic Dynamics and Control, Vol. 12(2-3), pp. 231-254. https://doi.org/10.1016/0165-1889(88)90041-3
Johansen, S. (1992). Cointegration in Partial Systems and the Efficiency of Single-Equation Analysis. Journal of Econometrics, Vol. 52 (3), pp. 389-402. https://doi.org/10.1016/0304-4076(92)90019-N
Johansen, S. (2004). Cointegration: An Overview. Department of Applied Mathematics and Statistics, University of Copenhagen. Available at:http://web.math.ku.dk/~susanne/Klimamode/OverviewCointegration.pdf [Retrieved in August, 2018].
Klein, L.R., Ball, R.J., Hazlewood, A., and Vandome P. (1961). An Econometric Model of the United Kingdom, Oxford: Basil Blackwell.
Lipsey, R.G., and Steuer M.D. (1961). Relations between Profits and Wage Rates, Economica, Vol. 28 (110), pp. 137-155. https://doi.org/10.2307/2551519.
Lucas, J.R.E. (1972). Expectations and the Neutrality of Money. Journal of Economic Theory, Vol. 4(2), pp. 103-124. https://doi.org/10.1016/0022-0531(72)90142-1.
Lucas, J.R.E. (1996). Nobel Lecture: Monetary Neutrality. Journal of Political Economy, Vol. 104 (4), pp. 661-682. https://doi.org/10.1086/262037
Mankiw, N.G. (2015). Principles of Economics, Kuala Lumpur: Cengage Learning.
Mehra, Y. (1993). Unit Labor Costs and the Price Level. Federal Reserve Bank of Richmond Economic Quarterly, Vol.79 (4), pp. 35-51.
Melnick, R., and Strohsal, T. (2017). Disinflation in Steps and the Phillips Curve: Israel 1986-2015. Journal of Macroeconomics, Vol. 53, Issue C, September, pp. 145-161. https://doi.org/10.1016/j.jmacro.2017.06.008
Merton, H.M., and Upton, C.W. (1986). Macroeconomics: A Neoclassical Introduction, Chicago: University of Chicago Press.
Onaran, Ō., Stockhammer, E. and Grafl, L. (2011). Financialization, Income Distribution and Aggregate Demand. Cambridge Journal of Economics, 35 (4), pp. 637-661. https://doi.org/10.1093/cje/beq045
Onaran, Ō., and Galanis, G. (2014). Income Distribution and Growth: A Global Model. Environment and Planning A: Economy and Space, Vol. 46 (10), pp. 2489-2513. https://doi.org/10.1068/a46265
Onaran, Ō., and Obst, T. (2015). Wage-led Growth in the EU15 Member States: The Effects of Income Distribution on Growth, Investment, Trade Balance, and Inflation. Greenwich Papers in Political Economy, GPERC28, pp. 1-50. https://doi.org/10.1093/cje/bew009
Phillips, A.W. (1958). The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957. Economica, Vol. 25 (100), 283-300. https://doi.org/10.1111/j.1468-0335.1958.tb00003.x
Pujol, T., and Griffiths, M. (1997). Moderate Inflation in Poland: A Real Story. (In C. Cottarelli and G. Szapáry eds.) Moderate Inflation. The Experience of Transition Economies, Washington D.C: International Monetary Fund. https://doi.org/10.1006/jcec.1999.1591
Rissman, E. (1995). Sectoral Wage Growth and Inflation. Federal Reserve Bank of Chicago Economic Perspectives. Vol. 19, No. 4, pp. 16-28.
Romer, D. (2001). Advanced Macroeconomics, Nueva York: McGraw-Hill.
Rotemberg, J. (1987). The New Keynesian Microfoundations. In S. Fischer ed., NBER Macroeconomics Annual 1987, Vol. 2 Cambridge, Massachusetts: The MIT Press. https://doi.org/10.1086/ma.2.4623707
Samuelson, P. (1994). Facets of Balassa-Samuelson Thirty Years Later. Journal of International Economics, Vol. 2 (3), pp. 201-226. https://doi.org/10.1111/j.1467-9396.1994.tb00041.x
Sargan, J.D. (1964). Wages and Prices in the United Kingdom: A Study in Econometric Methodology. (In P.E. Hart, G. Mills and J.K. Whittaker, eds.) Econometric Analysis for National Economic Planning, London: Butterworth.
Sargan, J.D. (1984). Published works of J.D. Sargan. (In David F. Hendry and Kenneth F. Wallis, eds.) Econometrics and Quantitative Economics, New York: Blackwell.
Spanos, A. (1995). On Theory Testing in Econometrics: Modeling with Non-experimental Data. Journal of Econometrics, Vol. 67 (1), pp. 189-226. https://doi.org/10.1016/0304-4076(94)01633-B
Stigler, G.J. (1966). The Theory of Price, New York: Macmillan.
Stockhammer, E., Onaran, Ō., and Ederer, S. (2009). Functional Income Distribution and Aggregate Demand in the Euro Area. Cambridge Journal of Economics, Vol. 33(1), pp. 139-159. https://doi.org/10.1093/cje/ben026
Uhlig, H. (2005). What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure. Journal of Monetary Economics, 52, pp. 381-419. https://doi.org/10.1016/j.jmoneco.2004.05.007
Varian, H.R. (1999). Intermediate Microeconomics. A Modern Approach, New York: Norton.
Wallis, K.F. (1979). Econometric Implications of the Rational Expectations Hypothesis. Econometrica, Vol. 48 (1), pp. 40-73. https://doi.org/10.2307/1912018
Woodford, M. (2003). Interest and Prices: Foundations of a Theory of Monetary Policy, Princeton, Oxford and Beijing: Princeton University Press.
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2021-09-01
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Carbajal-De-Nova, C. (2021). Wages and inflation in Mexican manufacturing: A two-period comparison: 1994-2003 and 2007-2016. Análisis Económico, 36(93), 27–50. https://doi.org/10.24275/uam/azc/dcsh/ae/2021v36n93/Carbajal
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