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Friday, May 05, 2006

Cross-Country Relationship Between Wage and Price Inflation

Just for fun, I took this chart from The Economist and graphed the cross-country relationship between changes in the CPI and changes in wages (the first two and last two columns in the chart):

Click to enlarge

Here is the graph, along with the estimated regression line: Estimated Wage = 1.27 + .727*CPI. The lighter markers are the data from a "year ago" and the darker markers are the data listed as "latest" in the chart:

Click to enlarge

I wouldn't read too much into this, e.g. the estimate that a 1% change in inflation casues a .73% change in wages, there are all sorts of controls to put into such a regression and it's not obvious that causality runs only from prices to wages, there are lags to consider, the data for each country is correlated across years (e.g. the two observations in the upper right are both Iceland), data sources aren't given, etc., etc., but it does give a sense of how these two variables are related.

    Posted by on Friday, May 5, 2006 at 05:55 PM in Economics, Inflation | Permalink  Comments (7)


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