Macroeconomic implications of rational expectations for various OECD countries

Raymond Rodrigue Myrthil, Fordham University


The focus of the dissertation is to investigate wage behavior for various OECD countries under the hypothesis of rational expectations. In particular, it focuses on the pattern of instability of wages with implications to model the labor market, combining and institutional approach with an econometric investigation of the data.^ The body of this dissertation consists of six chapters. Chapter 2 is a review of the literature. It traces the development of the labor market from simple static models to the most complicated dynamic models. Chapter 3 examines the two oil shocks themselves and the aggregate effects on macroeconomic variables in selected OECD countries. Chapter 4 begins with the analysis of the concepts of nominal wage stickiness and real wage stickiness and the establishes the main differences between the two. Additionally, the same chapter develops a model of aggregate supply and demand to explain the important characteristics of the international macroeconomic adjustment in the 1970s. Both models follow the spirit of Branson and Rotemberg (1980) and Sachs (1979) in the assumption of partial wage adjustment to a stochastic target wage.^ Additionally, extensions and empirical tests of the models are presented. This section investigates whether macroeconomic time series are consistent with time trend decomposition usually employed, and discusses the statistical issues involved in testing for deterministic trends and presents testing unit roots. There is enormous literature on this problem but one of the most commonly used tests is the Dickey-Fuller test. Furthermore, modified log differences transformations were presented and estimated. They show that the U.S. is not the only country in which nominal wages are rigid as pointed out by Branson and Rotemberg. In addition, the chapter looks at the VAR model with impulse response functions and confirms that real wages and nominal wages are not very responsive to changes in unemployment. Finally, cointegration tests between real wages and unemployment as well as nominal wages and unemployment are analyzed.^ Chapter 5 summarizes the Branson-Rotemberg model and introduces a dynamic version of their model. Chapter 6 concludes the study with the results of the dynamic models with theoretical application or justification and proposes further research. (Abstract shortened with permission of author.) ^

Subject Area

Economics|Labor economics

Recommended Citation

Myrthil, Raymond Rodrigue, "Macroeconomic implications of rational expectations for various OECD countries" (1991). ETD Collection for Fordham University. AAI9215351.