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The impact of reference norms on inflation persistence when wages are staggered

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  • Knell, Markus
  • Stiglbauer, Alfred

Abstract

In this paper we present an extension of the Taylor model with staggered wages in which wage-setting is also influenced by reference norms (i.e. by benchmark wages). We show that reference norms can considerably increase the persistence of inflation and the extent of real wage rigidity but that these effects depend on the definition of reference norms (e.g. how backward-looking they are) and on whether the importance of norms differs between sectors. Using data on collectively bargained wages in Austria from 1980 to 2006 we show that wage-setting is strongly influenced by reference norms, that the wages of other sectors seem to matter more than own past wages and that there is a clear indication for the existence of wage leader-ship (i.e. asymmetries in reference norms). JEL Classification: E31, E32, E24, J51

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1047.

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Date of creation: Apr 2009
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Handle: RePEc:ecb:ecbwps:20091047

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Keywords: Inflation persistence; Real Wage Rigidity; staggered contracts; Wage Leadership;

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Citations

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Cited by:
  1. Emmanuel Dhyne & Jerzy Konieczny & Fabio Rumler & Patrick Sevestre, 2009. "Price rigidity in the euro area - An assessment," European Economy - Economic Papers 380, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Markus Knell, 2010. "Nominal and Real Wage Rigidities. In Theory and in Europe," Working Papers 161, Oesterreichische Nationalbank (Austrian Central Bank).
  3. Juillard, M. & Le Bihan, H. & Millard, S., 2013. "Non-uniform wage-staggering: European evidence and monetary policy implications," Working papers 442, Banque de France.
  4. Martine Druant & Silvia Fabiani & Gabor Kezdi & Ana Lamo & Fernando Martins & Roberto Sabbatini, 2009. "How are firms’ wages and prices linked : survey evidence in Europe," Working Paper Research 174, National Bank of Belgium.
  5. Goran Vukšić, 2012. "Sectoral wage dynamics and intersectoral linkages in the context of export competitiveness: the case of Croatia," wiiw Balkan Observatory Working Papers 99, The Vienna Institute for International Economic Studies, wiiw.

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