TY  - JOUR
AU  - Neumark,David
AU  - Leonard,Jonathan S.
TI  - Inflation Expectations and the Structural Shift in Aggregate Labor-Cost Determination in the 1980s
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4018
PY  - 1992
Y2  - March 1992
UR  - http://www.nber.org/papers/w4018
L1  - http://www.nber.org/papers/w4018.pdf
N1  - Author contact info:
David Neumark
Department of Economics
University of California at Irvine
3151 Social Science Plaza
Irvine, CA  92697
Tel: 949-824-8496
Fax: 949/824-2182
E-Mail: dneumark@uci.edu

Jonathan S.. Leonard
Graduate School of Business
350 Barrows Hall
University of California
Berkeley, CA  94720
Tel: 415/642-7048
E-Mail: leonard@haas.berkeley.edu
AB  - Aggregate labor cost equations tended to overpredict labor-cost inflation in the United States in the 1980s. We consider the hypothesis that a change in the price-inflation-expectations mechanism can explain this apparent structural shift in the 1980s. We examine whether the sharp recession of the early 1980s and continued tight monetary policy throughout the decade may have led to changes in the relationship between past price inflation and expected price inflation such that distributed lags of price inflation persistently overestimated expected price inflation, and hence led to overprediction of labor-cost inflation by standard Phillips curves in this period. The evidence leads us to reject this hypothesis, and to conclude instead that there was a true structural shift in labor cost determination.
ER  -