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Implications of Economic Interdependence for Endogenous Wage Indexation Decisions

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  • Bryson, Jay H
  • Chen, Chih-huan
  • VanHoose, David D

Abstract

This paper shows how economic interdependence affects the indexation decisions of atomistic wage setters in an environment in which monetary authorities do not observe stochastic disturbances before making their policy choices. If stochastic disturbances are common across countries, interdependence has no effect on equilibrium indexation choices in identical countries. However, if disturbances are country specific, numerical simulations show that interdependence is likely to reduce equilibrium indexation choices relative to a small open economy. We also show that indexation choices may be either strategic complements or strategic substitutes, but that strategic complementarity becomes more likely as the degree of interdependence rises. Copyright 1998 by The editors of the Scandinavian Journal of Economics.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 100 (1998)
Issue (Month): 4 (December)
Pages: 693-710

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Handle: RePEc:bla:scandj:v:100:y:1998:i:4:p:693-710

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Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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Cited by:
  1. Petrakis, Emmanuel & Vlassis, Minas, 2003. "Minimum wages in national and internationally integrated economies," Journal of Policy Modeling, Elsevier, vol. 25(3), pages 257-265, April.
  2. James Cover & David Hoose, 2002. "Asymmetric wage indexation," Atlantic Economic Journal, International Atlantic Economic Society, vol. 30(1), pages 34-47, March.
  3. Lars Calmfors & ├ůsa Johansson, 2002. "Nominal Wage Flexibility, Wage Indexation and Monetary Union," CESifo Working Paper Series 761, CESifo Group Munich.
  4. Joseph Daniels & David VanHoose, 1998. "Two-Country Models of Monetary and Fiscal Policy: What Have We Learned? What More Can We Learn?," Open Economies Review, Springer, vol. 9(3), pages 265-284, July.

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