Prices, Labour Demand and Real Output in the New Zealand Economy : An Econometric Application

This paper presents the results of an investigation into one of the processes by which prices could have been set in New Zealand over about the last twenty years; it does not concern itself with any processes by which wages may have been determined, as the particular price process is for a representative firm which treats its wage rate as predetermined. The firm attempts to maximise its profits, and is able to choose simultaneously its product price, its demand for labour services, and the level of real output it wishes to produce.A structural model for this representative firm is developed within a static framework in Section one. In Section two are presented the results obtained from econometric estimation of a dynamic form of the model. Aggregate data have been used both for the ordinary least squares (OLS) estimates of each of the price, labour demand, and real output equations, and for the two stage least squares (2SLS) estimates of the simultaneous equation system. Principal conclusions from the research are summarised in Section three