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Wage Contracts and Stabilization Policies in Semi-Industrialized Economies

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Abstract

We build a dynamic, general equilibrium model of a small, open, semi-industrialized country with overlapping wage contracts, wage indexation, and indexation lags. We calibrate and simulate the model in order to assess the role of wage contracts in explaining the features of recent real-world stabilization programs. We show that a policy package with a significant reduction of public sector deficits can reproduce qualitatively most of the observed comovements among macroeconomic aggregates. However, the responses of the model's endogenous variables to the implementation of the stabilization program are not as pronounced as in the data. Nous élaborons un modèle dynamique d'une petite économie ouverte et semi-industrialisée. Dans cette économie, il y a des contrats de salaire imbriqués qui peuvent être indexés au niveau des prix, et où l'indexation peut être sujette à des retards. Nous étalonnons et simulons le modèle afin d'expliquer les caractéristiques principales de certains programmes de stabilisation récents. Nous montrons qu'un programme avec des réductions substantielles des dépenses publiques engendre des comouvements qui sont qualitativement compatibles avec les données. Par contre, la taille des réponses des agrégats au programme de stabilisation est généralement inférieure à ce qu'on observe dans les données.

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Bibliographic Info

Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 93.

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Length: 41 pages
Date of creation: Oct 1999
Date of revision:
Handle: RePEc:cre:crefwp:93

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Keywords: Exchange Rate Based Stabilization Programs; Developing Economies;

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