A. W. H. Phillips: Collected Works in Contemporary Perspective: The relation between unemployment and the rate of change of money wage rates in the United Kingdom, 1861-1957
When the demand for a commodity or service is high relatively to the supply of it we expect the price to rise, the rate of rise being greater the greater the excess demand. Conversely when the demand is low relatively to the supply we expect the price to fall, the rate of fall being greater the greater the deficiency of demand. It seems plausible that this principle should operate as one of the factors determining the rate of change of money wage rates, which are the price of labour services. When the demand for labour is high and there are very few unemployed we should expect employers to bid wage rates up quite rapidly, each firm and each industry being continually tempted to offer a little above the prevailing rates to attract the most suitable labour from other firms and industries. On the other hand it appears that workers are reluctant to offer their services at less than the prevailing rates when the demand for labour is low and unemployment is high so that wage rates fall only very slowly. The relation between unemployment and the rate of change of wage rates is therefore likely to be highly non-linear. It seems possible that a second factor influencing the rate of change of money wage rates might be the rate of change of the demand for labour, and so of unemployment. Thus in a year of rising business activity, with the demand for labour increasing and the percentage unemployment decreasing, employers will be bidding more vigorously for the services of labour than they would be in a year during which the average percentage unemployment was the same but the demand for labour was not increasing. Conversely in a year of falling business activity, with the demand for labour decreasing and the percentage unemployment increasing, employers will be less inclined to grant wage increases, and workers will be in a weaker position to press for them, than they would be in a year during which the average percentage unemployment was the same but the demand for labour was not decreasing. A third factor which may affect the rate of change of money wage rates is the rate of change of retail prices, operating through cost of living adjustments in wage rates. It will be argued here, however, that cost of living adjustments will have little or no effect on the rate of change of money wage rates except at times when retail prices are 1 This study is part of a wider research project financed by a grant from the Ford Foundation. The writer was assisted by Mrs. Marjory Klonarides. Thanks are due to Professor E. H. Phelps Brown, Professor J. B. Meade and Dr. R. G. Lipsey for comments on an earlier draft.
Stock returns and inflation: The role of the monetary sector
This paper hypothesizes that the relation between stock returns and inflation is caused by the equilibrium process in the monetary sector. More importantly, these relations vary over time in a systematic manner depending on the influence of money demand and supply factors. Post-war evidence from the United States, Canada, the United Kingdom and Germany indicates that the negative stock return-inflation relations are caused by money demand and counter-cyclical money supply effects. On the other hand, pro-cyclical movements in money, inflation, and stock prices during the 1930's lead to relations which are either positive or insignificant.
Federal Reserve Bank of San Francisco Working Paper Series Does Inflation Targeting Anchor Long-run Inflation Expectations? Evidence from Long-term Bond Yields in the U.s., U.k., and Sweden Does Inflation Targeting Anchor Long-run Inflation Expectations?
We investigate the extent to which inflation targeting helps anchor long-run inflation expectations by comparing the behaviour of daily bond yield data in the United Kingdom and Sweden—both inflation targeters—to that in the United States, a non-inflation-targeter. Using the difference between far-ahead forward rates on nominal and inflation-indexed bonds as a measure of compensation for expected inflation and inflation risk at long horizons, we examine how much, if at all, far-ahead forward inflation compensation moves in response to macroeconomic data releases and monetary policy announcements. In the U.S., we find that forward inflation compensation exhibits highly significant responses to economic news. In the U.K., we find a level of sensitivity similar to that in the U.S. prior to the Bank of England gaining independence in 1997, but a striking absence of such sensitivity since the central bank became independent. In Sweden, we find that inflation compensation has been insensitive to economic news over the whole period for which we have data. We show that these observations are also matched by the relative means and volatilities of the time series of far-ahead forward inflation compensation in these three countries. Our findings support the view that a well-known and credible inflation target helps anchor the private sector’s views regarding the distribution of long-run inflation outcomes.
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