Measuring the Interaction of Structural Changes with Inflation

The paper is organized in four chapters. The first describes the methodological framework of the investigation, insisting on defining the sectoral changes and the relative prices, as well as on their interaction (as expectations and as real processes); the theoretical considerations are algebraically formalized in order to be analyzed statistically. The second chapter is devoted to the data problems, with emphasis on the configuration of input-output tables used in application and on the main trends identified in the structural evolution of the Romanian economy during 1989-2005. The third – as a main one – contains a detailed econometric analysis. The main assumption of the paper is that the downward price rigidity cannot be separated from the corresponding downward output rigidity. They represent an indestructible tandem. In other words, the downward price rigidity is intimately connected not only to the nominal wage low flexibility, but to the slow employment adjustments, too. This approach has many consequences. From this point of view, the orthogonal regression is admitted as a more suitable method as compared to the direct and the reverse OLS. The paper ends with a short set of concluding remarks, including possible extensions of this research.