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The Changing Responsiveness of Wages to Price-Level Shocks: Explicit and Implicit Indexation

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  • Holland, A Steven

Abstract

This article provides evidence for the U.S. over the period 1961-84 that the respons iveness of nonunion wages to price-level shocks changes through time much as the degree of indexation in union contracts does, suggesting that there exists implicit as well as explicit indexation. When coupl ed with the result from previous research that indexation responds po sitively to inflation uncertainty, the findings indicate that greater inflation uncertainty may lead to reduced overall wage rigidity. In the context of a rational expectations model with long-term wage cont racts, a decline in the effectiveness of an activist monetary policy could result. Copyright 1988 by Oxford University Press.

Suggested Citation

  • Holland, A Steven, 1988. "The Changing Responsiveness of Wages to Price-Level Shocks: Explicit and Implicit Indexation," Economic Inquiry, Western Economic Association International, vol. 26(2), pages 265-279, April.
    • Handle: RePEc:oup:ecinqu:v:26:y:1988:i:2:p:265-79
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    Cited by:

    1. Haque, Qazi & Groshenny, Nicolas & Weder, Mark, 2021. "Do we really know that U.S. monetary policy was destabilizing in the 1970s?," European Economic Review, Elsevier, vol. 131(C).
    2. Hofmann, Boris & Peersman, Gert & Straub, Roland, 2012. "Time variation in U.S. wage dynamics," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 769-783.
    3. Carrillo, Julio A. & Peersman, Gert & Wauters, Joris, 2022. "Endogenous wage indexation and aggregate shocks," Journal of Macroeconomics, Elsevier, vol. 72(C).
    4. Víctor López Pérez, 2003. "Wage Indexation and Inflation Persistence," Working Papers wp2003_0303, CEMFI.
    5. Giovanni Di Bartolomeo & Marco Di Pietro, 2017. "Intrinsic Persistence of Wage Inflation in New Keynesian Models of the Business Cycles," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(6), pages 1161-1195, September.
    6. Steven Holland, 1994. "Inflation and Wage Indexation in the Postwar U.S," Macroeconomics 9402001, University Library of Munich, Germany.
    7. Jovanovic, Boyan & Ueda, Masako, 1998. "Stock-Returns and Inflation in a Principal-Agent Economy," Journal of Economic Theory, Elsevier, vol. 82(1), pages 223-247, September.

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