On the International Interdependence of Prices and Wages

Extract

To discuss the problem of international interdependence of prices it is advisable, first of all, to distinguish between short-run and long-run changes. Such a distinction may be based on the usual assumption that plants and other fixed assets are given in the short and variable in the long run; this distinction, however, may be supplemented by the notion that fixed assets may vary even in the short run, but, if so, they vary as a consequence of decisions taken in previous periods, so that in the short run variations in fixed assets (and in productive capacity) are to be considered as externally given. In practice, the year-to-year data can be taken as the empirical counterpart of short-run changes, whereas pluriennal (two or three-year) moving averages can be taken as the counterpart of long-run changes.