The Price-Wage Mechanism in Poland: An Endogenous Switching Model.

This paper proposes a two-equation price-wage model that enables to test whether the inflationary pressure on wage rate is only present when the rate of inflation is greater than some threshold value. Since the likelihood function for this model is very nonstandard, we develop a small-sample Bayesian approach to estimate its parameters. Our empirical results for Poland, 1962-1993, give support to the hypothesis of the price-wage spiral with a positive threshold value of inflation. Copyright 1997 by Kluwer Academic Publishers