Keynesian Dynamics and the Wage-Price Spiral:Estimating a Baseline Disequilibrium Approach

4.1 Data Description

The empirical data of the corresponding time series are taken from the Federal Reserve
Bank of St. Louis data set (see http:/www.stls.frb.org/fred). The data are quarterly ,
seasonally adjusted and are all available from 1948:1 to 2001:2. Except for the unem-
ployment rates of the factors labor, U^l, and capital, U^c, the log of the series are used
(see table 1).

Table 1: Data used for empirical investigation

Note that wt and pt now represent logarithms, i.e., their first differences dwt,dpt give the
current rate of wage and price inflation. We use dp12t and dfptto denote now specifically
the moving average with equal weight and linearly decreasing weight of price inflation
over the past 12 quarters (as an especially simple measure of the employed inflationary
climate expression), and denote by V ^l,V^c the rates of utilization of the stock of labor
and the capital stock. The graphs of the time series of these variables are shown in the
figure 2.

There is a pronounced downward trend in part of the employment rate series (over the
1970’s and part of the 1980’s) and in the wage share (normalized to 0 in 1996). The
latter is not the topic of this paper, but will be briefly considered in the concluding
section. Wage inflation shows three to four trend reversals, while the inflation climate
representation clearly show two periods of low inflation regimes and in between a high
inflation regime.

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