A Causal Relationship between Inflation and Productivity: An Empirical Approach for Romania

Abstract

The short and long-run link between productivity, inflation and wages for the period 1975–1992 is tested using recently developed techniques on cointegration and seasonal integration. When quarterly data are used over the whole period we find no evidence of cointegration. However, when we incorporate the 1986 stabilization program we find evidence of cointegration between the three variables. The evidence on short-run dynamic results were indicative of a negative effect of inflation on productivity but not of a clear-cut effect of wages on productivity.