This paper analyses the behaviour of real wages over the business cycle for Australia, using quarterly observations for the period 1984??:??1ââ?¬â??2008??:??2. The unobserved cyclical components of prices, real wages, and three other cyclical variables are extracted from the observed time series using Harvey's (1985, 1989) structural time series model. A model relating these components is estimated, producing results which show that both prices and real wages are procyclical.
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