Price dynamics and the adjusting mechanism - an empirical investigation of the US prices between 1950s-1990s

The paper analyses the impact of the labour costs and import costs on the prices of final goods in the USA during the 1950s-1990s period. The elasticity of the final prices with respect to the import and labour price indexes is a main determinant in the go through channel affecting the prices of final goods and services and inflation in the USA. I test several econometric specifications to estimate the correct function describing the labour and import cost indexes affecting the final prices. The analysis shows that lagged variables increase the overall fit of the estimation. The contribution of my paper is to propose a more complete specification of the price formation, than the ones existing in the current studies. In addition, the paper adds to the endogenous growth literature by providing an alternative explanation of the prices of final goods in last 50 years in the USA.