The dynamic effects of shocks to wages and prices in the United States and the euro area

This paper investigates the dynamics of aggregate wages and prices in the UnitedStates (US) and the Euro Area (EA) with a special focus on persistence of real wages,wage and price inflation. The analysis is conducted within a structural vector errorcorrectionmodel, where the structural shocks are identified using the long-runproperties of the theoretical model, as well as the cointegrating properties of theestimated system. Overall, in the long run, wage and price inflation emerge as morepersistent in the EA than in the US in the face of import price, unemployment, orpermanent productivity shocks. This finding is robust...