Wage and price adjustment in a multimarket disequilibrium model

Abstract

Abstract The estimation of wage and price adjustment equations rests heavily on the use of tension variables that aim at capturing the disequilibria in the labour and goods markets. Disequilibrium models therefore provide a natural way of endogenizing these tension variables. This paper estimates jointly a two‐market disequilibrium model and a wage and price adjustment block where price and wage growth react to excess effective demands. The estimation is carried out using the simulated pseudo‐maximum‐likelihood methods developed by Laroque and Salaniè (1989); the results look promising as regards the estimation of even more sophisticated models.

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