Wage Indexation and the Time Consistency of Government Policy
AbstractThis paper concerns the role of wage indexation as a mechanism for enabling an economy to achieve outcomes that would not otherwise be time consistent. The desirability of indexation depends on the size of real and nominal shocks and on a policymaker's incentives for short-run inflation surprises. Policymakers' incentives to utilize wage indexation are examined and it is found that 'weak' policymakers are more likely to choose wage indexation. Hence, in an electoral equilibrium, voters may choose a policymaker who cares more about unemployment than inflation but who chooses wage indexation to commit to low inflation. Copyright 1995 by The editors of the Scandinavian Journal of Economics.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.
Volume (Year): 97 (1995)
Issue (Month): 1 (March)
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Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442
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- James, Jonathan G. & Lawler, Phillip, 2010. "Union objectives and indexation externalities in a monopolistically competitive economy," Research in Economics, Elsevier, vol. 64(1), pages 28-35, March.
- James, Jonathan G. & Lawler, Phillip, 2006. "Productivity, indexation and macroeconomic outcomes: The implications of goods market competition and wage bargaining structure," Journal of Economics and Business, Elsevier, vol. 58(5-6), pages 465-479.
- Esteban Jadresic, 1998. "The Macroeconomic Consequences of Wage Indexation Revisited," IMF Working Papers 98/15, International Monetary Fund.
- Oscar Landerretche & Fernando Lefort & Rodrigo O. Valdés, 2002. "Causes and Consequences of Indexation: A Review of the Literature," Central Banking, Analysis, and Economic Policies Book Series, in: Fernando Lefort & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Serie (ed.), Indexation, Inflation and Monetary Policy, edition 1, volume 2, chapter 2, pages 019-064 Central Bank of Chile.
- Frank Heinemann, 2003. "The Inflationary Impact of Wage Indexation," CESifo Working Paper Series 867, CESifo Group Munich.
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