Income inequality has risen in the United States and United Kingdom since the 1980s. There are several views that emphasise that this situation is the outcome of institutional factors such as deregulation, privatisation, tax reform favourable to high-income earners, reform of social security system, decreasing income transfer and attack on trade unions (Freeman and Katz, 1994; Pontusson, 2005; Krugman, 2007; Goldin and Katz, 2007).
However, the most popular view is the skill-biased technological change (SBTC) hypothesis wherein the main cause of rising income inequality is the demand shift towards skilled labour through the diffusion of the ‘IT-related technique’ (Berman, Bound and Griliches, 1994; Autor, Katz and Krueger, 1998; Autor, Katz and Kearney, 2005). As the SBTC hypothesis assumes that wages are determined chiefly by the supply-demand condition in the labour market, the demand shift towards skilled labour raises the wages of skilled workers. On the other hand, there are some studies that emphasised the influence of globalisation. This view is divided into two hypotheses.
Macroeconomists are used to work with the notion of an economy’s overall price level. When this price level increases over time, they describe this as inflation. The measurement of such price level changes requires suitable statistical techniques. Unfortunately, most macroeconomists leave the development of adequate solutions to price statisticians. Among those, however, there is widespread agreement that the notion of an economy’s overall price level is a meaningless concept. For macroeconomists, this finding has troubling implications: The development and use of macroeconomic models that are based on the notion of an overall price level is a waste of time.
When the notion of an overall price level is a flawed concept, then it would be equally flawed to define inflation as the increase of the overall price level. Therefore, price statisticians usually define inflation in an alternative way. In a first step, they compute for each individual commodity the individual price change. Then they take an average of these individual price changes. If this average indicates an overall price increase, then they denote this phenomenon as inflation.
Rocketing of stock prices in the late 1990s has captured special attention of economists. The traditional present value model (PVM), which claims that stock prices are the present value of future dividends, cannot explain the high level and volatility of stock prices. LeRoy and Porter (1981) and Shiller (1981) made the first rejections of the model, followed by West (1988). Even though considerable progress has been made since then, yet each theory or empirical test only partly explains the bubble-like pattern in stock prices. Debate on explanations of stock prices deviating from fundamental prices is still ongoing.
