Measuring the Interaction of Structural Changes with Inflation

by Dobrescu, Emilian
Published in Romanian Journal of Economic Forecasting
, 2009, volume 10, supplement, 5-99

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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
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.

Keywords: structural changes, relative prices, downward price rigidity, downward
output rigidity, orthogonal regression

JEL Classification:
C22, C32, C43, E31