Chapter

Wage-Price Causality in the Egyptian Economy (1990–2005)

Hanaa Kheir-El-Din

in What Drives Prices in Egypt?

Published by American University in Cairo Press

Published in print November 2009 | ISBN: 9789774163036
Published online September 2011 | e-ISBN: 9781617970344 | DOI: http://dx.doi.org/10.5743/cairo/9789774163036.003.0007
Wage-Price Causality in the Egyptian Economy (1990–2005)

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The consensus in the empirical literature is that higher wage growth does not cause higher inflation. Theory of the inflation process is caused by excess aggregate demand. It argues that expansionary monetary policy increases aggregate demand, putting upward pressure on prices. The econometric literature has typically studied whether wage growth Granger-causes inflation. Most studies have not found any strong indications that this is the case (Hess and Schweitzer 2000). According to the Phillips curve, high employment levels are accompanied by high inflation. Any increase in costs like that by growing wages will be fully translated into increases in prices but will not be accompanied by higher output levels.

Keywords: wage growth; inflation; monetary policy; aggregate demand; prices; employment; Granger-causes; Egyptian economy

Chapter.  9655 words.  Illustrated.

Subjects: Political Economy

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