The wage–price spiral: International evidence and implications

Using time-series quarterly data for 12 industrial countries, the dynamics of nominal wage and price adjustments in the face of aggregate demand shocks varies with conditions in labor and product markets and in the face of positive and negative demand shocks. During expansions, the simultaneous overlap of nominal adjustments in labor and product markets prolongs output expansion while maintaining or increasing the real standard of living. In contrast, structural and institutional settings appear to have moderated the severity of contractionary demand shocks on real output growth and the real standard of living.