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Indexation: Historical Characteristics in Chile and International Experience

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  • Oscar Landerretche
  • Rodrigo Valdés

Abstract

The purpose of this paper is twofold. First it reviews the history of indexation in Chile since 1938, focusing on interpreting indexation in the historical, political, and economic context of Chilean economic development. Second, it analyzes the experience of a selected group of countries to address three questions: how do wage indexation and the level of inflation relate to each other?, what happens to the real exchange rate and inflation when the nominal exchange rate is indexed?, and what is the experience with de-indexation in labor markets? The main conclusions are that wage indexation does not automatically appear in response to any inflation surge; that wage or exchange rate indexation leads to higher inflationary levels, volatility and persistence; and that de-indexation in labor markets has been observed in response to the need to cut real wages in order to boost competitiveness or to address high unemployment, and/or the need to reduce inflationary inertia as part of a stabilization plan.

Suggested Citation

  • Oscar Landerretche & Rodrigo Valdés, 1998. "Indexation: Historical Characteristics in Chile and International Experience," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 1(2), pages 041-068, December.
    • Handle: RePEc:chb:bcchec:v:1:y:1998:i:2:p:41-68
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    References listed on IDEAS

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