Indexation Rules, Risk Aversion, and Imperfect Information
AbstractNominal wage adjustment is modelled as resulting from bargaining between a risk-neutral firm and a risk-averse worker, in an environment where the rate of inflation is a random variable. Risk aversion makes for endogenous indexation arrangements, which deliver partial indexation as they exploit imperfect inflation indices; moreover, risk aversion generates a positive correlation between indexation and inflation variance. The model suggests a distinction between complete versus incomplete inflation adjustment, on the one hand, and perfect versus imperfect adjustment, on the other. Copyright 2003 Blackwell Publishing Ltd and The Victoria University of Manchester.
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Date of creation: 2002
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Other versions of this item:
- Corrado Benassi & Antonello E. Scorcu, 2003. "Indexation Rules, Risk Aversion and Imperfect Information," Manchester School, University of Manchester, University of Manchester, vol. 71(3), pages 330-340, 06.
- NEP-ALL-2006-04-29 (All new papers)
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