Monetary policy in the presence of asymmetric wage indexation
AbstractThis paper studies monetary policy in the presence of asymmetric wage indexation. It is found that monetary authorities do not react to small output shocks and that their reaction to large shocks is asymmetric, insofar as they absorb positive shocks more than negative ones. As a consequence, asymmetric wage indexation skews the distribution of output to the left, and can therefore be contractionary. It has ambiguous effects on expected inflation, on the volatility of output and inflation, and on expected welfare, relative to an equivalent symmetric indexation. Optimal symmetric inflation however always outperforms optimal asymmetric indexation.
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Bibliographic InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series DULBEA Working Papers with number 05-16.RS.
Length: 34 p.
Date of creation: Sep 2005
Date of revision:
Publication status: Published by: DULBEA - Université libre de Bruxelles, Bruxelles
monetary policy; wage indexation.;
Other versions of this item:
- Giuseppe Diana & Pierre-Guillaume Méon, 2008. "Monetary Policy in the Presence of Asymmetric Wage Indexation," Southern Economic Journal, Southern Economic Association, vol. 75(1), pages 69-90, July.
- Giuseppe Diana & Pierre-Guillaume Méon, 2003. "Monetary policy in the presence of asymmetric wage indexation," Working Papers of LaRGE Research Center 2003-06, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg (France).
- Pierre-Guillaume Méon & Giuseppe Diana, 2008. "Monetary policy in the presence of asymmetric wage indexation," ULB Institutional Repository 2013/8354, ULB -- Universite Libre de Bruxelles.
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-09-29 (All new papers)
- NEP-CBA-2005-09-29 (Central Banking)
- NEP-MAC-2005-09-29 (Macroeconomics)
- NEP-MON-2005-09-29 (Monetary Economics)
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