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Labour market flexibility
Friedrich Klau and Axel Mittelstädt
Differences between unemployment rates for countries or regions may be explicable in terms of different degrees of "labour market flexibility". This article discusses some of the meanings of that term, and related macroeconomic implications. External price or supply shocks arising in conditions of rigid labour markets are thought to lead to higher structural unemployment. Making labour markets more adaptive and responsive to changing demand and supply conditions would therefore help to remove impediments to a return to sustainable high employment levels.
Price dynamics and competition in five OECD countries
David Encaoua and Paul Geroski
This article examines the relationship between the competitive environment facing firms and the extent to which prices charged by these firms are responsive to changes in costs or demand. A model of optimal dynamic pricing is developed and tested on disaggregated industry data from five countries. The general conclusion is that in those sectors where competitive pressures - as proxied by several different indicators - are relatively weak, price smoothing is an important phenomenon. The implications of this finding for macroeconomic behaviour of economies are briefly considered, and in particular the light it sheds on "neoclassical" versus "fix-price" paradigms for macroeconomic theory.
The supply side in OECD's macroeconomic model
John Helliwell, Peter Sturm, Peter Jarrett and Gérard Salou
This paper describes modifications to, and further developments of, the supply block in the Secretariat's world model INTERLINK as of autumn 1985. The objective of the work was to strengthen the role in the model of supply side elements, in particular profitability. In the process, stockbuilding was endogenised, assigning to inventories an important buffer role between sales and output in the dynamic adjustment process. Price formation has been linked more coherently to the revised supply structure via a dual cost function, and labour supply has been endogenised.
International price levels and purchasing power parities
Peter Hill
When the prices of goods andservices sold in different OECD countries are converted into a common currency by means of market exchange rates, differences emerge between countries in both the levels andpatterns of their prices. These differences, which are both substantial and persistent, are systematically related to levels of real per capita GDP. They show that there is no tendency for exchange rates to equal the purchasing power parities for final domestic expenditures, at least between countries with markedly different levels of real per capita GDP.
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