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Real-wage versus wage-share targets in an open-economy model of the wage and price dynamics

Søren Harck

Keywords: wage-share targets; real-wage targets; inflation; Phillips curve; unemployment

This paper examines the properties of a model of the wage and price dynamics of an open economy allowing for dynamic inhomogeneity and, simultaneously, featuring an error-correction term in the wage as well as in the price equation. Specifically, it is concerned with bringing out the supply-side implications of distinguishing between wage-share and real-wage error correction in the nominal-wage dynamics. Put more generally, it aims to clarify how the supply-side constraints (in the shape of the wage and price dynamics) imposed on the demand side depend on the nature of the error-correction terms and on the dynamic-homogeneity properties.

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