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What Does Downward Nominal-Wage Rigidity Imply for Monetary Policy?

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  • Seamus Hogan

Abstract

A recent paper has suggested a reason why there might be a lasting trade-off between inflation and unemployment at low inflation rates. This has led some economists to recommend that Canada increase its inflation rate. The idea underlying this view is that, because firms are reluctant to cut workers' nominal wages, a moderate amount of inflation can be used to facilitate needed reductions in real wages. This paper discusses the link from downward nominal-wage rigidity to unemployment, and considers some of the issues that need to be addressed in order to determine whether a change in Canada's monetary policy is warranted.

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Bibliographic Info

Article provided by University of Toronto Press in its journal Canadian Public Policy.

Volume (Year): 24 (1998)
Issue (Month): 4 (December)
Pages: 513-525

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Handle: RePEc:cpp:issued:v:24:y:1998:i:4:p:513-525

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  1. Alan S. Blinder & Don H. Choi, 1989. "A Shred of Evidence on Theories of Wage Stickiness," NBER Working Papers 3105, National Bureau of Economic Research, Inc.
  2. David Card & Dean Hyslop, 1996. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Working Papers 5538, National Bureau of Economic Research, Inc.
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  7. John E. Golob, 1993. "Inflation, inflation uncertainty, and relative price variability: a survey," Research Working Paper 93-15, Federal Reserve Bank of Kansas City.
  8. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
  9. Ben S. Bernanke & Martin L. Parkinson, 1990. "Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries," NBER Working Papers 3503, National Bureau of Economic Research, Inc.
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  11. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
  12. Summers, Lawrence, 1991. "How Should Long-Term Monetary Policy Be Determined? Panel Discussion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 625-31, August.
  13. Pierre Fortin, 1996. "The Great Canadian Slump," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 761-87, November.
  14. McLaughlin, Kenneth J., 1994. "Rigid wages?," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 383-414, December.
  15. David E. Lebow & David J. Stockton & William L. Wascher, 1995. "Inflation, nominal wage rigidity, and the efficiency of labor markets," Finance and Economics Discussion Series 95-45, Board of Governors of the Federal Reserve System (U.S.).
  16. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September.
  17. Bewley, Truman F, 1995. "A Depressed Labor Market as Explained by Participants," American Economic Review, American Economic Association, vol. 85(2), pages 250-54, May.
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Cited by:
  1. Özer Karagedikli & Kirdan Lees, 2004. "Do inflation targeting central banks behave asymmetrically? Evidence from Australia and New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP 2004/02, Reserve Bank of New Zealand.
  2. David E. Lebow & Raven E. Saks & Beth Anne Wilson, 1999. "Downward nominal wage rigidity: evidence from the employment cost index," Finance and Economics Discussion Series 1999-31, Board of Governors of the Federal Reserve System (U.S.).
  3. Allan Crawford & Seamus Hogan, 1999. "Downward wage rigidity," Bank of Canada Review, Bank of Canada, vol. 1998(Winter), pages 29-48.
  4. Bläs, Barno, 2006. "Ausmaß und reale Konsequenzen nach unter starrer Nominallöhne. Eine Untersuchung für den deutschen Arbeitsmarkt," University of Regensburg Working Papers in Business, Economics and Management Information Systems 416, University of Regensburg, Department of Economics.

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